The New Face Of ’40 Act Fund Servicing
When it comes to servicing asset managers, especially those with global ambition, advantage goes to those with the broadest sweep. A large-scale universal bank, for instance, can leverage a full spectrum of services on behalf of asset managers, ranging from fund administration and accounting to global and local custody, FX and agency securities lending. In addition, we can help with clients’ financing, capital markets and brokerage needs. This type of model is seen as particularly attractive to clients eager to achieve overall process efficiency through outsourcing, while benefiting from consistency across service models and platforms.
Having boots on the ground across numerous key jurisdictions is also crucial. In the past, US asset managers wishing to domicile funds in a foreign market would typically procure a local securities services provider to support such an endeavor. Offering a fully harmonized network in support of global fund services gives clients true cross-regional expertise as they continue to expand and distribute investment products into new territories. At BNP Paribas, for instance, we support an expansive proprietary custody network covering the vast majority of global investment funds and their geographic footprints, which allows clients to bypass local intermediaries for asset protection and servicing.
Dealing with data
Fee compression, due in part to a proliferation of passive investing and competitive forces on expense ratios, has put even greater emphasis on streamlining post-trade investment operations. As such, leading-edge data management, and analytics tools and skillsets, will continue to be front-of-mind for mutual fund managers. A multi-asset, multi-jurisdiction enabled platform brings stability to the investment process by providing firms with a “single source of truth,” including access to consistent, up-to date information, allowing managers to better organize and analyze all internal and external sources of relevant portfolio information.
Additionally, data integration not only allows firms to address regulatory compliance deficiencies, but also significantly lowers costs and complexity creating a more scalable business in the process. In the US, BNP Paribas is one of the few providers of integrated custody, traditional and alternative fund administration and middle office services through our Neolink client portal.
While bringing such capabilities inhouse is not out of the question, particularly for larger firms with greater resources, the time, effort, investment and human capital needed to successfully manage a multi-sourced data platform can be substantial. Not surprisingly, accessing a purpose-built, data-as-a-service (DAAS) solution set is increasingly perceived as a highly efficient and cost-effective alternative for asset managers.
Additional trends are likely to keep outsourcing on the front burner. Investors seeking capital appreciation through progressive causes continue to expand the frontier for environmental/social/governance (ESG) strategies; a recent BNP Paribas survey found 8 out of 10 asset managers are already including ESG principles within their portfolios, some devoting as much as 50% of AUM to sustainable investments. At the same time, demand for exchange-traded funds continues its multi-decade uptick, and as a result the ETF industry is likely to further its utilization of third-party solutions and innovation in order to maintain investment process and infrastructure efficiency. And to minimize the drain on internal resources, funds are also looking to next-generation solutions to help them maintain global regulatory compliance, as well as mutualize the escalating costs therein.
Looking ahead, we see the entire suite of fund servicing solutions continuing to evolve in order to meet the needs of mutual fund clients as they deal with an ever-changing set of critical business issues. With the US Fed aggressively slashing interest rates in an effort to contain recent stock-market turbulence, the need for asset-class diversification has perhaps never been more acute. This in turn compels administrators and asset servicers to offer advanced methods for servicing multi-asset class portfolios, which are expected to grow in number as rates reach historic lows and investors seek new sources of alpha and added protection against equity downdrafts.
Other factors for asset managers— from rising investment complexity and tougher regulatory demands, to reduced fees and interest rates approaching negative territory—are expected to further the cause of reduced capital expenditures and the seeking of cost synergies via operational ‘smart-sourcing.’ The result is an emphasis on global operating models as an alternative to using disparate providers across numerous locales. The more managers opt for these single-source solutions, the greater the chance for the industry as a whole to achieve market-wide standardization.