Arnaud Claudon, Head of Asset Managers and Asset Owners Client Lines, reflects on 25 years in the industry and what the next 25 years will bring.
Since I started my career in this industry more than 25 years ago, I’ve worked in Europe and APAC, with clients big and small, with different profiles, strategies and objectives. But throughout this, a few major transformations stand out in my mind.
An asset management industry in constant evolution
Firstly, at the beginning of my career, asset owners and asset managers’ investment strategies were largely based on actively managed, liquid, conviction-based mutual funds and mandates, with assets predominantly in equities, and corporate and government bonds.
Nowadays, that traditional recipe is still available to investors, but the momentum has shifted durably towards low-cost exchange traded funds (ETFs) in all shapes and sizes at one end of the spectrum, and private asset investment structures on the other end.
These products are available across an unprecedented array of distribution channels. Great for investors, but this explosion of choice has happened alongside a wave of new regulations affecting the product manufacturers and distributors. All this has had a massive impact on the way the industry is organised. Another important trend of course is sustainability, barely heard of two decades ago, and now a major factor in asset managers’ investment strategies and processes.
Innovation: the only constant for asset managers
Not everything has changed, however, the institutional investor industry has always been data-driven, with an emphasis on innovation that constantly produces new products, investment strategies and distribution channels. Which is what I love about the sector. Also, knowing your end client is as important as ever, even how they define investing and for what purpose. With the constant pressure on fees and margin erosion, efficiency also continues to be an important focus.
Today, we have an increasingly complex, highly regulated, multi-asset industry. To overcome this complexity, we need connectivity across these parties, and a new form of integrated ecosystem
All these developments have been structurally reframing the way asset managers and owners behave, and the plethora of parties across capital markets and the investment ecosystem that support and work with them. So today, we have an increasingly complex, highly regulated, multi-asset industry. To overcome this complexity, we need connectivity across these parties, and a new form of integrated ecosystem. This is particularly true for mid-sized asset managers, who must manage regulatory and cost constraints and develop the best operational setup, without being able to reach the scale of larger asset managers.
The compatibility conundrum: choosing a portfolio management system
So, how can asset managers best manage this complexity? One decision that is more important than ever is your operational model and underlying technology set-up. Choosing the appropriate technology on which to manage your portfolios (a portfolio management system, or PMS) is like deciding between an Apple, Android or Microsoft smartphone. Twenty years ago, the asset manager could choose one or several platforms and then decide independently which partners, such as a custodian and market data provider, to use in their ecosystems.
The next evolution of the industry will go beyond a functional ecosystem of partners and create a true, strategic coalition of willing players
This approach is no longer the most efficient. Now, it is much smarter to choose service providers that are compatible with a specific PMS, and even better, if they can support several PMS ecosystems. Returning to the smartphone analogy, it’s the ability to choose between several systems depending on what you’re using your phone for, or perhaps for different functions of your phone. An adaptable approach can make a big difference for asset managers, helping them to handle current and future industry complexity in terms of consistent data models, inbound and outbound connectivity and optimised data flows. End-to-end data flow consistency is improved; workflows are enhanced; as is the cost of ownership.
In my opinion, the next evolution of the industry will go beyond a functional ecosystem of partners and create a true, strategic coalition of willing players. This coalition would share common motivations and objectives of fixing unsolved industry issues via co-ordinated investment roadmaps, for example, to address the issue of market data cost which in the end is borne by the investors.
I envision these coalitions inventing new ways of sharing all this information, avoiding duplication, and improving audit trails to reduce the overall cost and investment flow time lags for the end investor. This may also mutually lower technology risk.
New asset classes, products and distribution: connectivity is key
As more and more investment products are developed and distribution channels diversify, collaboration is crucial. One example is the digital asset space and tokenisation of fund shares, which requires joint efforts and investment across the value chain. This includes working with other players such as the European Central Bank, issuers, market makers and investors to come up with true value creation to address industry pain points. At BNP Paribas, we have been working closely with clients and trusted partners to develop proof of concepts and experimentations in this space.
The key to this, again, comes back to connectivity. Being better connected with distribution platforms can help asset managers understand their end client better. And being better connected with different market infrastructures and fintechs can help them reduce costs, increase efficiencies and access the specialist expertise required to handle and administer private assets, for example, another huge area of growth.
As an industry, we need to mobilise the industry data that is available for private assets, the specialist financing expertise of private product and liquidity management, and the teams to handle complex investments. As traditional asset managers start to expand further into private assets, their internal teams – both the front and the back office – must collaborate to share expertise from managing different asset types. And across the industry, traditional siloes must be broken to share knowledge and infrastructure, harnessing and enabling the growth of these products.
So, much has changed in 25 years, and much will change further in the coming 25. I’m hopeful that the journey will be all the more satisfying as we bring together new partnerships through coalitions of the willing.
