Arnaud Claudon, Head of Asset Managers and Asset Owners Client Lines, Securities Services, BNP Paribas, explains that the global custodian provides multi-asset post-trade and asset servicing solutions currently covering 90+ markets and with 9,350 funds administered. In particular, his team focuses on supporting buy-side market participants.
Claudon is in charge and a member of the management team for the securities services arm, looking after the asset owners and asset managers client lines.
“I am responsible for the sector strategy,” he says. “What do we want to do for pension funds or sovereign wealth funds clients? We develop our own products and services for institutional investors, and that means all asset servicing products and solutions across asset classes to support all the investment strategies of these institutions on liquid products, private assets and new forms of securities such as tokenised securities.”
Their propositions span across the front middle and back-office services across asset classes in the regions where the firm is engaged.
“We don’t want to be the jack of all trades so we choose our battles,” Claudon says. “For example, we are very active in pension funds in certain jurisdictions and not others.”
Claudon describes the firm’s geographical spread as “back to our DNA” but also adds that it’s not static regions where they have expanded giving the example that they have deployed into Asia Pacific.
“Typically, we decided 10 years ago to step up our investments in the servicing of ETFs. Historically, we are a European asset servicer and the majority of our asset management clients are continental European local champions with domestic ranges of funds and also offshore funds plus institutional mandates but they are all primarily conviction based active managers.
“They weren’t involved in ETFs but looking at the ETF industry in the US as a trend but of course unwilling to get into that space because it’s a volume business.
“Recently that has changed and most of my client are contemplating whether or not they should add an ETF wrapper to their portfolios. The ETF product structure is one that is important to reach certain demographics of investors, particularly younger investors who are higher users of more digital financial platforms and if you don’t bring to them products they are interested in they go elsewhere.
“It’s not because they have developed a sudden interest in ETFs, but rather the ETF is a distribution channel that can help them reach certain objectives. ETFs are structured slightly differently and for us it is a dialogue that we love because it is an opportunity to put forward the whole capabilities of the BNP Paribas group.
“We have specialised solutions for ETFs for these would-be ETF issuers and we can also put them in touch with our colleagues that can provide market making solutions, we can bring the whole group’s capabilities to these newcomers.
“Usually, they don’t consider launching classic passive ETFs in order to compete with passive main street trackers. This is overcrowded and concentrated – their view is to launch active ETFs. The traditional asset manager in the active management world wants to deploy active strategies into ETF wrappers with a sustainability dimension.”
Claudon says that when a firm decides to launch a new product, they face the usual considerations of whether to make or buy. “So, they need expertise in terms of investment management new routines or sub delegate some parts to other players who can white label their capabilities.”
He is seeing appetite to launch fixed income ETFs and ETFs focused on unlisted assets, although warns that those come with plenty of challenges.
“Our clients tend to start with their liquid strategies. ETFs are lower margin products for a given strategy which have lower fees for investors which is one of the underlying drivers. Launching an ETF requires careful consideration because you need to be convinced you can reach a certain size for the product to be profitable. We bring all our experience in helping issuers on their journey.”
Within Europe, Claudon notes that there is a healthy competition between Dublin and Luxembourg.
“Dublin is where the majority of the action on ETFs is, however Luxembourg has adjusted its rules and becoming more relevant as a domicile for ETF issuers,” he says. “Private assets are strong in Luxembourg and it wants to catch the two legs of the dynamic segments of the market – ETFs and private assets.”
Claudon believes that there is a shift in the industry and that the one size fits all that prevailed is increasingly irrelevant.
“In terms of asset servicing and our custodian role, we are the backbone and the guys managing the pipelines and pipes,” he says.
“Our business model is to accrue volumes on custodian platforms/industrial platforms in the sense that we are handling massive industrial scale volumes, running around the clock following the sun, safekeeping trillions of assets.”
Claudon notes standardisation of processes and reducing costs is what custodians do and that recently the volumes in the market have been tremendous.
“The tendency has been to be trying to bring all the services into the same model, but what we have started doing on our side is to say this has allowed us to deliver service at a low cost but also it can create some inefficiencies around data.
“When you are inserted in the process flow of the clients you generate some data latencies so the price to pay for accruing volumes as custodians has been to introduce more players in the flow and some data inconsistences or latencies are creeping up which creates impacts.”
So, the firm has focused on how to continue to deliver to its clients the benefits of scale but also use these data related frictions to identify how the key technology used by asset managers works. “We can adapt our platforms to make the maximum integration between our technology and the technology of choice of our clients.”
The firm has started working with the portfolio management systems (PMS), described by him as ‘the backbone of an asset manager’ to develop optimal connectors so that the data could flow in and out in a very efficient optimal manner.
“This has proven to be extremely successful,” he says. “These are the types of innovations that we have been working on and part of business as usual for us now as it makes the life of our clients easier. Data quality is critical. If you want to be good at what you do you need good data – it’s beyond asset servicing.”
