Asset owners and managers - navigating the new business environment

By Philippe Kerdoncuff, Head of Asset Owners and Asset Managers, Australia & New Zealand, Securities Services business at BNP Paribas.

In today’s dynamic world, asset owners and asset managers are continually having to adapt to changing market conditions. 

A sharper awareness on asset class innovation, refining investment operating models, ongoing reporting and disclosure requirements for ESG investments, plus managing liquidity, are some of the challenges that stand out - and where BNP Paribas can provide experienced support and expertise, transforming the challenge into an opportunity. 

Managing asset class innovation and diversity

Globally asset owners and asset managers are facing increasing investment in digitalisation to keep up with market trends. According to Markets & Markets, the tokenisation market is expected to broaden from $2.3 billion in 2021 to $5.6 billion by the end of 2026, with an average annual growth rate of 19%.¹

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Custodians are now having to take these assets into consideration and it’s an area that BNP Paribas’s Securities Services business (BNP Paribas) is following closely by experimenting with solutions, participating in new initiatives launched by clients or by some market infrastructures including central banks. However, we’re not seeing a huge level of interest from Australian clients, with a lack of regulation in this sector likely playing a key role. Instead, we’re witnessing increasing local allocations to loans, property, and private markets – a fast growing area which BNP Paribas is also heavily involved in.  

For example, in the loans sector, we’re seeing a growing trend here reflecting the state of play in the US where the loans sector grew exponentially over the past two years to January 2023.²  Similarly with respect to the ever-expanding private markets segment, many pension funds are developing in a way to better improve financial returns. To achieve this, specific and dedicated operating models need to be put in place. This is an area where BNP Paribas have designed and implemented state-of-the art technology to increase visibility and oversight but also provide timely valuations and risk and performance analytics.

Refining and improving operating models

Operational risk is another theme now unfolding globally with regulations in Europe, UK and the Asia Pacific focussing on the need for operational resilience by asset owners.

For example, in Australia the new CPS230 prudential standard on track to commence 1 July 2025, encompasses enhanced Board requirements where a Board of an APRA regulated entity is ultimately accountable for oversight of the entity’s operational risk management. This includes business continuity responsibilities and the management of service provider arrangements.

In response to efficiency and regulatory drivers, asset managers and owners and their service providers are refining operating models to streamline operational activities and technology, creating closer integration along the investment lifecycle. 

BNP Paribas is helping clients interface with third-party solutions that bring together middle office, fund administration and custody services to create a fully integrated end-to-end investment management solution. 

For BNP Paribas’ clients, it means a single management system – single end to end platforms managing analytics, risk, investments, reporting, and attribution, rather than numerous systems operating independently of each other. Our experience across the entire asset class range in building links between the client, our third-party solutions and BNP Paribas means that this sophisticated infrastructure provides a single point of access, consolidating views for both asset owners and asset managers. 

Steering the ESG pathway

Supporting asset owners and asset managers through the ESG transformation is an ongoing commitment for us at BNP Paribas. We are continually developing ESG tools and reporting and incorporate ESG components across our entire product range. 

The 2023 BNP Paribas’ ESG Global Survey of 420 asset owners and managers, hedge funds and private equity firms shows that institutional investors are mobilising capital towards investments that will deliver measurable positive impacts alongside financial returns. According to the survey³, limited data quality remains the biggest barrier to ESG investing: 71% of respondents say inconsistent and incomplete ESG data is a significant barrier to the greater adoption of ESG (+17 percentage points versus 2021). Regulation and reputational risks remain major drivers of ESG adoption. Respondents were most likely to have assessed the financial materiality of ESG regulation and reputational risks (60% versus 58% respectively). 

These findings confirm the various challenges institutional investors face to practically implement sustainability into their strategies. For instance, navigating the moving feast of new regulation, asset owners are required to put meaningful climate policies into effect, but at the same time they’re aware existing climate benchmarks don’t often suit their purposes. BNP Paribas is working on tailored solutions to address these challenges across our client range. 

Data is critical, with the need to access reliable and timely data, in particular for reporting requirements. BNP Paribas’ Manaos platform⁴ connects asset managers to best practice ESG data and service providers, enabling access to 15 best of breed data providers, granting access to over 80 apps and more than 5000 ESG data points.  This technology enables institutional investors to manage their investment data with respect to ESG monitoring and reporting on sustainability. The investment services platform now collects fund inventory data from 100 asset managers for portfolio look-through applications, covering EUR 5,000 billion in assets. Fund managers can instantly assess a range of insights – including the ESG risk and impact scores of their investments, their contributions to the United Nations Sustainable Development Goals, and climate change indicators – to facilitate the production of analytics and regulatory reports.  

On the regulatory front, complying with complex requirements, including fiduciary responsibilities is top of mind for asset owners and managers. The challenge for us is to help clients to stay ahead of the game and prove to their clients they are remaining true to label to avoid the spectre of greenwashing.  One of our core approaches is to integrate ESG components as part of our investment compliance duties, in addition to providing a consultative role. We check that asset managers are investing as per their investment mandate and not diverting their attention away from the source of their returns. 

Opportunity out of adversity - optimising cash balances

In the previous low interest rate era, cash management was a relatively easy game. According to Akshay Maharaj, Head of Treasury Asia Pacific for Securities Services at BNP Paribas, that has changed, with the market seeing a significant increase in interest rates. The rate rises have already impacted the way asset owners and asset managers do business. Funding costs are higher, and firms will expect to pay more.  As banks seek to stabilise funding sources, the value of deposits remains high. Institutional investors with long balances can capitalise on higher returns on operational cash balances – an opportunity out of adversity. 

Cash is again now considered a major and significant part of asset owners and managers investment strategy and a factor just as important as liquidity management. Optimising cash flows and enhancing liquidity processing allows asset owners and managers to reduce risk and maximise returns. 

BNP Paribas SmartCash is an innovative and flexible packaged solution to help asset owners and asset managers achieve efficient and effective cash management with the benefit of competitive returns, along with less manual processing which can be costly, risky and time consuming. 

Some asset owners and managers have over-the-counter options and other types of derivatives over their portfolios to better manage their cash collateral. They also need to manage liquidity risk as per their normal liabilities such as pension payments. BNP Paribas now offers collateral management services to asset owners to enable them to meet their financial management and margin rules obligations. 

Also, for institutional investors trading OTC derivatives, BNP Paribas has developed a full suite of services from initial margin calculation to collateral management. This includes triparty collateral management for non-cleared OTC derivatives,  in an end-to-end solution fully integrated with our broad and comprehensive global offering.

Benefits of a long-term partner

At its core, asset servicing is about the guarantee of service delivery and being close enough to clients to be a trusted and long-term strategic partner. BNP Paribas is here for the long haul; we continue to evolve and innovate, never standing still.  Asset owners and asset managers will continue to benefit from our experienced support, high quality reporting to both clients and regulators, timeliness, thought leadership and expert insights by keeping abreast of topics and gaining insights from around the world. 

As the industry changes, it is more important than ever to have partners who provide a safe pair of hands in today’s increasingly complex world. We partner with clients and remain committed to investing and developing new systems and processes to keep them ahead of the curve. 

While others are withdrawing from the sector, BNP Paribas continues to grow custody and securities services - and proudly strategically partner with and support a wide range of clients – from some of the biggest superannuation funds in the country through to also some niche players. We offer world-class service, tailor-made solutions and dedicated client support team, with the global backing and financial strength of the world-wide BNP Paribas Group.

¹Tokenization Market Size, Share, Trends, Revenue Forecast & Opportunities (marketsandmarkets.com)
²United States Commercial and Industrial Loans - August 2023 Data (tradingeconomics.com)
³Global ESG Survey 2023 - Securities Services (cib.bnpparibas)
⁴Manaos is developed by AELX SAS, a technology subsidiary of the BNP Paribas Group

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