Global leaders forum 2013

Transcription

1 Global leaders forum 2013 Post event discussion paper A front row seat on intelligent outsourcing and our industry s changing landscape

2

3 The Global leaders forum Investment management has always been a varied and vibrant industry, continually presenting new challenges to market participants. The investment management landscape of today is no exception, with fund managers and institutional investors facing unprecedented demands in a context of subdued economic growth, increasing regulation and the globalisation of financial markets. For pension funds and insurance companies, who are faced with the necessity of securing yields to meet their long-term liabilities, the current context is particularly demanding. Against this backdrop, the inaugural Global leaders forum was held in Paris on 24 October The event brought together leading industry specialists and BNP Paribas Securities Services experts to focus on the challenges of operational organisation. Participants, including the chief operating officers from a range of international asset managers, pension funds and insurance companies, shared their thoughts, insights, concerns and predictions for the industry. The forum combined panel discussions, presentations and networking opportunities, creating lively discussion and debate. It brought together a range of market participants, who shared their experiences, generating a collaborative dialogue on the issues facing our industry. The first part of the event focused on optimising the operating model, through improving cost-efficiency and quality, while also taking account of the global dimension. The second part, meanwhile, looked to the challenges on the horizon the difficulties posed by new regulation and issues raised in accessing non-traditional asset classes. The Universal Management Company was examined as one possible solution in optimising and streamlining the business model in the current regulatory environment.

4

5 Contents Optimising operations Building a global operating model 6 Outsourcing trends, triggers and challenges 7 On the horizon Facing regulatory headwinds 8 The new market organisation for OTC derivatives 8 The Universal Management Company 10 The challenges of new asset classes 11 Your partner for a changing world Your partner for a changing world 12

6 Optimising operations Building a global operating model By sharing our experience, I hope this will reinforce our partnership. (Franck Dubois, head of asset & fund services operations) The world of finance continues to grow rapidly as financial institutions become more globalised. Investment managers have been looking beyond their regional borders to raise new assets and diversify their investor base. Cross-border distribution is growing ever more international. Meanwhile, institutional investors are less domestically oriented and their portfolios are becoming globally diversified. The increasingly globalised nature of the asset and fund services industry calls for further enhancement of the global servicing footprint. Investment managers require a service provider who can support them in multiple jurisdictions, while meeting greater demands for high quality service and managing costs. Franck Dubois, head of asset & fund services operations, shared BNP Paribas Securities Services experience in supporting asset managers and asset owners on a global scale. Our global operational model is based on the combination of our local presence together with our regional and international operating centres. We possess an extensive international network, spanning 34 countries and are present in all of the locations where our clients operate. This local expertise supports our regional centres in France, the UK, Poland and the US. It complements our global operational hubs in Lisbon and Chennai in delivering the highest standards of service to our clients. We have grown our international operations in ways that enhance our core business, while maintaining a reputation for service excellence. All of our teams work according to standard procedures, using shared processes and systems. Our global and regional hubs allow us to operate a follow-the-sun model, enabling us to provide a 24/5 service to our clients. The establishment of global centres means that we can take advantage of the opportunities offered by a highly connected world, such as educated and highly skilled workforces, cultural diversity and a new and wider range of clients. The Lisbon international operational centre combines a wealth of international experience and connectivity to provide clients with solutions tailor-made to their needs. The Chennai international hub, meanwhile, is an integral part of the global operating model, processing securities in the Asia Pacific time zone. Numerous logistical, technological and cultural challenges have been negotiated on the path to creating our global operating architecture. This has been largely made possible through a worldwide IT and operations function, with a strong emphasis on global governance, shared processes and communication between all teams. Through our culture of international collaboration, we will continue to facilitate enhanced service and develop our operations wherever our clients need us. 6

7 Outsourcing trends, triggers and challenges Market complexity and cost pressures have been driving the industrialisation of processing and the outsourcing of investment services. Yet, at the same time, regulators require investment managers to stay in control. To serve their institutional clients and remain competitive, asset managers need to combine excellence in services and cost efficiency. Questions of outsourcing, then, are central to investment managers as they strive to for their optimal operating model. Our panel, moderated by Philippe Tassin, deputy head of product and client solutions in the asset and fund services division of BNP Paribas Securities Services, brought together top organisational minds from the worlds of global investment management and consulting. All of the panellists had worked intensively on the integration of external growth to their businesses or on extensive outsourcing exercises. Central to their discussion were concerns on striking the right balance between control, cost efficiency and quality. Fund administrator outsourcing is not a new topic of conversation. However, the degree to which investment managers are willing to outsource has evolved. In recent years, we have seen a wide range of responsibilities shifted from the internal operations of a fund manager to the external operations of their fund administrator. Where, then, should the line be drawn in terms of the tasks that should be outsourced and those that remain in-house? From our panel discussion, that sparked lively interaction from the audience, it is clear that the attitudes to and appetites for outsourcing will depend on the requirements of each firm. Traditionally, investment managers have tended to retain in-house core activities considered as of strategic importance; such as portfolio management, risk management and relationships with their clients. By outsourcing the burden of non-core administrative functions, they have been able to focus their energies on managing their investments and generating value for their stakeholders. We made a conscious decision that we wanted our administration to be a separate part of our business. If we were to start with a blank sheet of paper, we would still outsource the services that we currently outsource today. However, I don t think that it is a secret that it has been a bumpy road at points. (Asset manager) A number of investment managers are taking the outsourcing brief even further. They have actively examined the scope of their in-house services to identify where additional cost efficiencies could be made. This has led them to proactively push the boundaries between what had been traditionally considered in-house or external. For instance, a growing number of managers are evaluating the advantages of fully or selectively outsourcing their dealing function. Client reporting, meanwhile, is increasingly being entrusted to third party providers. Regardless of the outsourcing model they adopt, investment managers must remain in control. While a range of functions may be outsourced, the related regulatory and reputational risks may not. Investment managers and their third party providers, therefore, must work together to ensure that governance and control processes are in place. Instead of a simple box-ticking exercise, ensuring effective oversight of outsourced relationships should entail ongoing dialogue between investment managers and their service providers. From the animated discussion on this topic, it is clear that outsourcing relations are a key area of strategic concern for the industry. In choosing a service provider, investment managers must be highly selective. A successful outsourcing relationship entails much more than simply delegating tasks to an external party. It is a long term partnership where the interests of the investment manager and the capabilities of the service provider must be aligned. Both parties should regularly revisit the scope of activities and review the governance of the relationship to ensure a fruitful and longstanding partnership. 7

8 On the horizon Facing regulatory headwinds Over recent years there have been successive waves of financial services regulation, with far reaching implications for the investment management industry. Unsurprisingly then, regulatory issues were a key theme of the Global leaders forum. Beyond understanding and complying with the deluge of diverse regulatory texts, investment managers must also be aware of the accompanying strategic challenges for their organisations. Particular focus was given to regulatory initiatives related to OTC derivatives. The Universal Management Company was examined as an option for streamlining the business model in the context of Ucits IV and AIFMD. The new market organisation for OTC derivatives Following the G-20 commitment to increase control and transparency of the OTC derivatives markets, a number of regulatory initiatives have been launched in the US (the Dodd-Frank Act) in Europe (EMIR) and in Asia. They all push towards a new market organisation based on increased standardisation of products, execution on electronic trading platforms, clearing through central counterparties and reporting to trade repositories. Requirements to use this new market organisation will not only apply to the main financial dealers but to all financial actors, including the buy side, which is not used to accessing financial market infrastructures. Our expert panel, moderated by Florence Fontan, head of the asset manager client segment, included a senior representative from the French regulator, who shared his first-hand insight on the topic, as well as an operations executive from a top asset management firm and BNP Paribas Securities Services own expert. Investment managers face numerous challenges in dealing with diverse OTC derivatives regulations. The task has not been facilitated by regulators changes by the implementation calendar and the definitions of the requirements. What market participants are currently realising is the sheer workload they will have to deal with to meet the requirements on time. We are still on moving sands, in the sense that the calendar on the clearing obligations which we know as of today may still be delayed and there is still some uncertainty related to the deadlines. (David Beatrix, senior business developer for OTC derivatives) According to David Beatrix of BNP Paribas Securities Services, throughout 2012 and early 2013 many clients were focused on finding solutions to the clearing obligation under EMIR. The focus has now switched to requirements regarding reporting to trade repositories. Reporting to trade repositories has proven to be more much more complicated than it initially appeared, said Beatrix. It is a concept that has a big impact in terms of infrastructure. Investment managers need to report not only trades, but also mark-to-market and collateral on a daily basis. In terms of infrastructure, therefore, this requires harmonisation between position keeping systems and collateral management systems. Today we really see a rationale in harmonising the infrastructure for the purposes of reporting to trade repositories, he added. 8

9 When you are a global asset manager with European-based funds, the fund manager being in the US, your counterparts being in the US and your clients being in Asia, are you subject to Dodd Frank or not? We are still struggling to answer the question. (Asset manager) The extraterritorial scope of the diverse texts has also posed difficulties for investment managers. The US Dodd-Frank Act and the European EMIR regulation are conceptually similar. However, issues of regulatory responsibility for cross-border transactions remain unclear. When you are a global asset manager with European-based funds, the fund manager being in the US, your counterparts being in the US and your clients being in Asia, are you subject to Dodd-Frank or not? We are still struggling to answer the question, commented one asset manager. While the idea behind the regulations is honourable, he added, the problem is that there has been little consensus on how to apply them across jurisdictions. On the execution side in Europe, the MiFID revision is still under negotiation and should be finalised by the end of It is likely that the directive will be enforced in MiFID is expected to modify the organisation of the OTC derivatives market to complement EMIR. It is also likely to modify the market for listed products (such as equities and bonds) with new execution platforms and transparency requirements. Despite some uncertainties, the industry is already adapting to new rules under both Dodd-Frank and EMIR, and a number of initiatives are taking form. New market infrastructures are developing (trade repositories, central counterparties and swap execution facilities), institutional investors are selecting their clearers, the cost of trading OTC derivatives is being assessed and the management of collateral is being looked at in detail. The level of change should not be underestimated. The multiplicity of regulations and the various market responses are creating a complex new landscape with which buy side actors will have to come to terms. 9

10 On the horizon The Universal Management Company We can see that what has always been an opportunity in terms of potential rationalisation is becoming an imperative. (Senior representative of an international professional services firm) Though the possibility of establishing a Universal Management Company (Universal ManCo) in Europe was introduced under the Ucits III regulation, initially this opportunity was not widely exploited. The creation of the management company passport under Ucits IV and the advent of AIFMD, however, have brought renewed impetus to this organisational model. The Universal ManCo is domiciled in an EU country. In choosing a domicile, fund managers must take account of fiscal considerations and offshore vehicles, as well as their strategy and international ambitions. This model integrates and pools support functions and general departments in order to generate economies of scale. It also has the added benefits of eliminating duplications and ensuring better monitoring and governance. Asset managers stand to gain in terms of efficiency, through improved decision-making and enhanced use of asset management capabilities. Jean Devambez, head of asset and fund services products, chaired a panel of experts, who took a detailed look at the Universal ManCo. They examined the possibilities for investment managers in this regard, the considerations and the potential implications for firms. With compressed operating margins and increased competition, there is a strong onus on investment managers to review their business models and broaden their client base. Going forward, penetrating international markets and marketing in an expanded range of jurisdictions will be a priority. In Europe, the challenge of cross-border distribution has been greatly facilitated through Ucits IV and AIFMD. The Ucits IV management company passport enables an authorised management company in one member state to act as the management company of another Ucits in another member state. Under AIFMD, an intra- European passport enables European managers of European AIFs to obtain authorisation from the relevant European authorities to sell their managed funds to professional investors in Europe. The various advantages of combining the different licences are incentives to rationalisation. The combination of the Ucits and AIFMD licences gives a very attractive scope of permitted activities. (Partner, law firm) Some aspects of the AIFMD regulation in particular are leading market players to consider the Universal ManCo. In the past, alternative funds in Europe were unregulated from the point of view of substance. Under AIFMD, the fund manager must not delegate so many of its functions that it is no longer considered, in substance, as the AIFM. According to one panellist, this has led to an exponential increase in the number of management company requests, as market players position themselves to be compliant with the directive. However, the Universal ManCo, like all major operational decisions, requires careful consideration. Asset managers must thoroughly examine a range of issues including administrative aspects as well as local interpretations and practice prior to the operational phase. They must also analyse whether the range of asset classes and fund structures that they manage lend themselves to the rationalised operational architecture as proposed by the Universal ManCo. 10

11 The challenges of new asset classes Institutional investors and asset managers are increasingly looking to invest in non-traditional asset classes. However, it is fair to say that unconventional asset classes bring unconventional challenges. Our panel, moderated by Dietmar Roessler, head of the asset owner client segment at BNP Paribas Securities Services, put private market assets under the spotlight. The panellists who shared their insight on this topic included the director of operations of a top asset management company, a representative from an independent policy research organisation and Hugh Stevens, head of private equity and real estate services at BNP Paribas Securities Services. Private capital markets, including private equity, real estate, infrastructure and debt funds have been generating considerable investor interest. The allure of these assets lies not only in the attractive returns they have generated, but also in their low volatility and their value in terms of diversification. The increasing allocations to these assets may also be explained by wider market dynamics. Given the low returns and uncertain outlook of traditional markets, many institutional investors such as pension funds and life insurers are turning to private market assets to meet their future liabilities. Investing in infrastructure, for example, can provide an opportunity to generate returns on successful construction projects coupled with an inflation-linked long-term income stream. However, for investors, there are a number of issues to examine when considering these assets. Private market investments are generally close-ended and illiquid in nature. From an operational point of view, investors must come to terms with the management of complex cash flows, the independent evaluation of investment performance and the analysis of the multiple risks associated with portfolios of private market investments. These challenges are compounded as allocations are made to a wider range of products, across multiple jurisdictions. The big things that people post global financial crisis are probably worried about in this space are liquidity and transparency. How do you demonstrate particularly to investors who may have been previously burned that you have a very good handle on the value of their investments? (Institutional investor) It appears however, that the industry has taken on board these challenges with investors, fund managers and service providers collaboratively working to elaborate operational solutions. In Australia, for instance, where private capital markets are a confirmed feature of institutional portfolios, the local regulator (APRA) has recently imposed a number of transparency requirements under the Stronger Super initiative. The various stake holders in the industry have been working together to enable fund managers to access a range of data to meet regulatory imperatives. Going forward, as the fund management industry, regulators and service providers align, it is likely that stakeholders will become more comfortable not only in investing in private market assets but also in outsourcing their operations. While traditional assets will continue to constitute the bulk of investor allocations, in the future, we can expect private assets to move from the realm of the unconventional to the mainstream. 11

12 Your partner for a changing world Influencing and understanding market change across our network is at the heart of delivering the expertise and solutions our clients need as they face the challenges of a changing world. At BNP Paribas Securities Services, we are committed to continuous investment in our global reach and solution breadth. As the landscape of investment management continues to evolve, we will maintain our engagement with our clients keeping you up to date on industry topics and regulatory change. Should you wish to discuss in greater detail any of the topics covered in this publication, please do not hesitate to contact our experts: David Beatrix Senior business developer, OTC derivatives David.beatrix@bnpparibas.com Florence Fontan Head of the asset manager client segment Florence.fontan@bnpparibas.com Philippe Tassin Head of asset & fund services solutions Philippe.tassin@bnpparibas.com Jean Devambez Global Head of asset & fund services products and solutions Jean.devambez@bnpparibas.com Dietmar Roessler Head of the asset owner client segment Dietmar.roessler@bnpparibas.com Franck Dubois Head of asset & fund services operations Frank.dubois@bnpparibas.com Hugh Stevens Head of private equity & real estate services Hugh.stevens@bnpparibas.com 12

13 Thank you We would like to thank all participants for their contributions to the 2013 Global leaders forum. Aberdeen Asset Management AMP Capital Arendt Autorité des Marchés Financiers AVIVA AXA Investment Managers BNP Paribas Investment Partners Deloitte Ernst & Young Henderson Global Investors Impax Asset Management Invesco Kingston Smith Consulting Mercer Nikko Asset Management Standard Life Investments Thomas Murray World Pensions Council 13

14

15

16 The information contained within this document ( information ) is believed to be reliable but BNP Paribas Securities Services does not warrant its completeness or accuracy. Opinions and estimates contained herein constitute BNP Paribas Securities Services judgment and are subject to change without notice. BNP Paribas Securities Services and its subsidiaries shall not be liable for any errors, omissions or opinions contained within this document. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. For the avoidance of doubt, any information contained within this document will not form an agreement between parties. Additional information is available on request. BNP Paribas Securities Services is incorporated in France as a Partnership Limited by Shares and is authorised and supervised by the ACPR (Autorité de Contrôle Prudentiel et de Résolution) and the AMF (Autorité des Marchés Financiers). BNP Paribas Securities Services, London branch is authorised by the ACPR, the AMF and the Prudential Regulation Authority and is subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by the Financial Conduct Authority are available from us on request. BNP Paribas Securities Services, London branch is a member of the London Stock Exchange. BNP Paribas Trust Corporation UK Limited (a wholly owned subsidiary of BNP Paribas Securities Services), incorporated in the UK is authorised and regulated by the Financial Conduct Authority. In the U.S., BNP Paribas Securities Services is a business line of BNP Paribas which is incorporated in France with limited liability. Services provided under this business line, including the services described in this document, if offered in the U.S., are offered through BNP Paribas, New York Branch (which is duly authorized and licensed by the State of New York Department of Financial Services); if a securities product, through BNP Paribas Securities Corp. or BNP Paribas Prime Brokerage, Inc., each of which is a broker-dealer registered with the Securities and Exchange Commission and a member of SIPC and the Financial Industry Regulatory Authority; or if a futures product through BNP Paribas Securities Corp., a Futures Commission Merchant registered with the Commodities Futures Trading Commission and a member of the National Futures Association. Printed by: Edit overso using recycled paper and vegetable inks December 2013