Why did BNP Paribas Securities Services decide to offer capabilities to service ’40 Act funds?
Claudine: BNP Paribas Securities Services is the fifth largest global custodian and we have a very strong presence in Europe and Asia Pacific. As we have ambitions to be the world’s premier securities services provider, we need to continue expanding our business in the world’s largest capital market – the US.
Andrew: Servicing ’40 Act funds [pooled investment vehicles offered by a registered investment company, as defined in the US 1940 Investment Companies Act] is the next logical stage in our ten-year journey to grow our US business, which began in 2012 with the launch of our local and global custody offering.
Tell us more about your acquisition of Janus Henderson's mutual fund operations.
Andrew: The acquisition – or lift out – of Janus Henderson’s middle and back office operations included 140 of their mutual fund operations experts, who are now part of our ’40 Act fund servicing team. Those professionals, based in Denver, Colorado, work across specialisations within IT, middle office transaction processing, and the core capabilities of fund accounting and administration. Importantly, this team was grown over decades from inside a global asset manager, which means they see the world in the same way as our clients. They bring a unique skill set to our servicing capabilities, which sets us apart in the fund administration sector.
What type of clients are you targeting with ’40 Act fund servicing?
Claudine: We have three target markets and these are heavily influenced by the trends that we are seeing in fund distribution, particularly asset managers wanting to diversify into different regions. We will focus on existing clients in Europe, Latin America and Asia Pacific that are targeting ‘40 Act franchises in the US, by providing them with a harmonised service across all asset classes and markets.
The second target market is US domestic asset managers. This group may want to expand their business across the globe, but feel underserved by existing securities services providers. The third market is those asset managers who want to work with one provider across multi-asset classes as opposed to receiving bifurcated service offerings for alternative and traditional asset classes. We can offer a harmonised service across all products, be they public funds or private investment vehicles.
How do you differentiate yourself from competitors in the market and how will clients benefit from working with you versus another provider?
Andrew: BNP Paribas Securities Services is one of only a small handful of universal bank providers servicing ’40 Act funds. This means we bring the entire Bank to our clients.
We offer everything from fund administration and accounting to global and local custody, FX and agency securities lending.
In addition, we can help with financing, capital markets and brokerage needs. This results in efficiencies for our clients.
Claudine: We are unique in that we are providing a local presence within a very robust global framework. That means, for example, that we can service the growing number of US asset managers that want to domicile funds in foreign markets. Until now, they would typically have had to utilise a local securities services provider to support their expansion in a new market.
For example, if a US asset manager wanted to domicile an infrastructure fund in Italy, they would likely have used a local Italian custodian. BNP Paribas’ harmonised global service and expansive global network mean they can rely on our expertise in numerous jurisdictions as they expand into new geographies.
Andrew: BNP Paribas is one of only two service providers to claim a proprietary custody network covering the vast majority of our clients’ global investment funds. Our broad local custody network covers 26 of the largest markets and 90% of clients’ assets are within the BNP Paribas network. Again, that creates many market efficiencies because clients don’t need to use a local intermediary for asset protection.
You have had a presence in the US market since 2012; how has BNP Paribas Securities Services’ business in the US grown over that time?
Claudine: The suite of products is dramatically different from when we started. Following the Janus Henderson acquisition, we are truly full service. We deliver everything from custody and settlement to derivatives clearing, collateral management, securities lending, alternative and traditional fund services and loan administration.
The past few years have been about product development, building out our locations and hiring the right staff. We are now ready to provide a more robust offering to our asset manager clients.
Which trends do you see in US fund administration?
Claudine: Fund administration is driven by clients’ critical business issues. The glaring issue is the low interest rate environment, which is really pushing asset class diversification. So for fund administration that means offering better multi-asset servicing.
Data, data management and analytics will continue to drive the business forward. Fee erosion coming from the passive side will continue straining fee revenues so efficiencies in the back office will be paramount, as will robust reporting. Interest in ESG continues to grow, as do products featuring ESG themes. And all things digital, cybersecurity and the everchanging regulatory environment are no longer trends but facts of life.
Andrew: The growth of private capital and therefore the need to be able to service multi-asset classes will continue to increase.
We’re seeing a lot of movement of asset managers adding to their product offering, especially on the private capital side, which in the next market cycle will have a greater influx of assets. Aside from that, the ETF market will continue to grow.