Read this article and learn about:
- Some of the key challenges facing the asset and fund services industry
- BNP Paribas Securities Services’ approach to growth
- Why it suits some institutional investors to outsource their back office activities
- How BNP Paribas Securities Services differentiate themselves from the competition
About the author:
Philippe Ricard, Head of Asset and Fund Services, BNP Paribas Securities Services
The global investment management industry faces much complexity and many challenges. In this recurrent CXO Corner relay column, we ask top executives to point the way ahead, sharing their views and best practices for meeting the challenges.
Journal: To start, can you tell us a bit about your professional background, and your current role and responsibilities?
Philippe Ricard: I started my career with Bank Paribas as a young graduate, first in the IT world and then in the field of international project management and change management. I then joined the Securities Services team in 1995 to help integrate the acquisition of JP Morgan’s clearing and custody business in Europe before taking on the lead of its international operations in Madrid and London.
Ten years ago, I helped establish our asset and fund servicing business (AFS). AFS is a Global Business Line of BNP Paribas Securities Services (hereafter BP2S), servicing circa 10,000 funds and 3 trillions of assets with approximately 5,500 staff in 17 locations (Americas, Europe, and Asia Pacific). We focus on servicing the buy-side sector, funds, and portfolios across multiple asset classes (long only, alternatives, exchange-traded, and indexed) and across a large number of institutional services (fund administration, middle office outsourcing, analytics, global custody, transfer agency and fund distribution services, depositary and fiduciary services).Journal: What are some of the key challenges BP2S currently faces in the asset and fund services industry?
Philippe Ricard: The challenges we face are parallel to the challenges our clients face. The dominating theme is the ongoing squeeze between a gradual fee reduction and an ever increasing regulatory pressure resulting in a margin compression and increasing complexity.
Regulators and investors are expecting investment managers to improve value for money by reducing management fees whilst at the same time improving performance, sophistication, quality, safety, compliance, and transparency of those investment management services. This happens whilst the pipeline of regulatory changes remains full of reforms (after AIFMD and UCITS 5, then comes PRIIPS and MiFID2) and has created a significant complexity overload.
Having said that, I see these challenges more as opportunities for achieving competitive advantage.
Technological innovation, and digital transformation in particular, is a new frontier for our industry with new possibilities to deliver far better, more insightful, and more accessible investment solutions at a more competitive cost. We believe this is going to transform in a positive way our industry and we are focusing on it at BP2S, last year launching our Innovation and Digital Lab (IdLab).
From a technology perspective, we intend to leverage blockchain, artificial intelligence, natural language generation, as well as the entire field of data management and big data analytics. From a business perspective, we are focusing on providing support to some specific fields like front-to-back office investment management solutions, fund lifecycle management solutions, and distribution services.
We can already report that the live pilots we have developed on those technologies in partnership with our clients and partners give us a real sense that there is a potential to radically transform both the industry’s cost equation and the client experience in order to rebuild investors’ confidence and restart a new cycle of growth.
Our main aim is to keep our finger on the pulse of these technologies, and be ready to adopt them when the time is right. Fortunately, we have an operating platform which is sufficiently agile to support this.
Our main aim is to keep our finger on the pulse of these technologies, and be ready to adopt them when the time is right. Fortunately, we have an operating platform which is sufficiently agile to support this.Philippe Ricard, Head of Asset and Fund Services, BNP Paribas Securities ServicesJournal: BNP Paribas Securities Services promotes the outsourcing of back office activities for institutional investors. Why?
Philippe Ricard: If you look at the history of outsourcing, at the end of the 1990s, outsourcing was a cost play for our clients to leverage scale and create efficiencies. While this is still an important element, it is also important that we now see outsourcing in much broader terms, including:
- a major driver for our clients to change their business models
- a new way to approach growth
- a better way to manage acquisitions more efficiently
- a way to keep up with regulation
- a way to operationalize the operating model across geographies, and ensure faster time-to-market in terms of services and capabilities
So if we promote outsourcing, it’s because it’s an important tool for the industry to adapt to the change of the environment.Journal: Is there a typical profile of an institutional investor willing to outsource its back office activities?
Philippe Ricard: That’s an interesting question, and actually, in my opinion there are three different profiles.
- There are those institutional investors who will have platform issues, such as a ‘burning platform’, technologically speaking. They have not adapted to the new world, or perhaps do not have the right technology provider. These firms will want a change of technology, but because it is such a major transformation, they may consider changing their operating model and use outsourcing as an alternative solution to help move much more quickly and effectively towards the desired state.
- Some players may have the right IT platform, but they don’t feel they are able to continue investing on this platform, or focusing on it sufficiently or experience difficulties to handle and develop the resources, skills and talents required to stay in the game. The platform is not ‘burning’ technologically but is becoming challenging from a capability standpoint. They may ask an outsourcing partner to take care of their existing technological stack and integrate it with no radical changes into a larger set of capabilities to benefit from scale and expertise whilst refocusing their footprint on core tasks like investment management, compliance, and distribution.
- Finally, there are those firms that simply want to up their game and transform their company. They may not think they need to outsource per say, but because they simply want a faster time to market and a more flexible operating model, outsourcing is a possible option for them. They gain more agility and are able to change their investment and acquisition strategies faster. These firms will look at outsourcing as a strategy for accelerating their strategic plans from a business perspective. Either from an investment services point of view, new instruments, new strategies, new geographies, changing distribution model.