Asset managers will go through a “painful transition” into 2017, according to BNP Paribas Securities Services’ head of custody & clearing in the Americas. Bruno Campenon, who relocated from Asia to New York in 2014 to support the French bank’s US expansion, expects fund houses to remain under “strong pressure” over the next twelve months.
“Rising regulatory constraints, decreasing returns and the growing weight of passive strategies pressure are the main challenges”, he told Global Investor/ISF. "We anticipate two or three mergers among the industry’s top 50 asset managers and a growing recourse to back, middle and front office outsourcing.”
Campenon expects global assets under management (AUM) to grow by 5% per annum – which was the average annualised rate from 2008 through 2014 according to The Boston Consulting Group (BCG). Growth stalled in 2015 to just 1%. Mutual funds and Undertakings for Collective Investment in Transferable Securities (UCITS) should continue to grow more quickly, Campenon reckons, at around 10%.
In an effort to generate alpha, the house view at BNP Paribas Securities Services is that there will be an increased allocations to alternatives, benefitting mainly private equity, real estate and alternative UCITS, and to a lesser extent, hedge funds. Fund of hedge funds will face increasing pressure.
“Meanwhile, Irish and Luxembourg funds should attract more interest than other domiciles, pushed by cross border distribution and the passporting uncertainties created by Brexit,” adds Campenon, the former head of BNP Paribas Securities Services’ Hong Kong branch.
"The most important questions clients should be asking themselves are what investments will add value to their end customer," he explains. "They will need to draw the line between commoditised area they can outsource, and added value services they need to focus on."
Additionally, the BNP Paribas executive expects there will be more demand for data consolidation across multiple vendors/providers, for analytical and statistical purpose. Connectivity will therefore become more of a generic requirement - one of the value that Distributed Ledger Technology (DLT) aims at bringing to the industry.
DLT, or blockchain, is one of BNP Paribas Securities Services’ four key areas of focus for 2017. The other three being operational efficiency, agility, and cyber security. “Since mid-2015, DLT has been on everybody’s mind, but this technology is still in its infant stage," Campenon explains. " 2017 should bring the roll-out of many concrete blockchain use cases, which will deliver cutting edge solutions to post-trade spaces.We are exploring areas where DLT can brings value and simplicity, specifically in areas where data distribution and sharing is key.”
The firm has also started to integrate robotics solutions, and continues to focus on system interoperability and around the clock accessibility to facilitate 'follow the sun' support. "Our objective is optimising processes, using the capability to work with robots and artificial intelligence so that concrete applications in day-to-day life can be developed," Campenon says. "Some of the ideas already being explored include enhancing client experience, account opening and tax processing.”
Clients are also forcing BNP Paribas Securities Services to not only be more efficient, but to be more agile, he explains. "Firms need to have the capacity to quickly respond to client demands and to deliver information in a more strategic and flexible way. "Using agile methodologies and light development strategies, in addition to leveraging Big Data and Artificial Intelligence, we are able to collaborate with and listen to clients. This enables us to learn with them rather than just from them.”
Campenon adds the every organisation is a potential target when it comes to cyber security, and in response, the industry more than ever needs to embed cyber-security in all aspects of their end-to-end process and infrastructure. "From adopting robust security controls to protecting against human error, infrastructure needs to be bullet proof and rapidly evolving to adapt to ever changing cyber threats," he concludes.