Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
BNP on a roll with new domestic custody business
BNP Paribas Securities Services has put on about $140 billion of new custody business in the area of sub custody and clearing in Australia in the past 12 months, pushing it up the market share charts.
David Braga, the Head of Securities Services for Australia and New Zealand, confirmed last week (May 13) that BNP Paribas had won six new clients for sub-custody and clearing over the past year or so. This included the business of Clearstream, which is estimated to account for about $90 billion of the new total under custody.
When ACSA (the Australian Custodial Services Association) collates its next six-monthly figures, for the period to June 30, BNP Paribas, which will have at least $170 billion, may move up one or two places in the sub-custody sector to either third or fourth spot.
The current ACSA rankings, as of December last, are HSBC with $1.41 trillion in sub or ‘domestic’ custody for foreign institutions, followed by J.P. Morgan, with $266 billion, Citi, with $175.4 billion, BNY Mellon with $73.8 billion, and BNP Paribas with $27.1 billion.
Braga said that the three primary requirements for a successful sub-custody offering were: a top technology platform; good people, and; the organisation’s culture and drive.
“We have a proprietary global platform,” Braga said, “with very high STP (straight through processing) rates. We are consistently rated number one among the global custodians for settlements and efficiency.”
He said the firm had been deliberate in looking to quickly introduce solutions to changes to the industry’s infrastructure, such as the automation of corporate actions by the ASX.
Similarly, in New Zealand, where BNP Paribas has a strong footprint, it has an advantage of being able to directly communicate with both the local exchanges, the NZX and NZ Clear.
Just as in Australia over the past year or so, New Zealand has been going through considerable change in the make-up of its funds management and savings and investment sectors.
For Australia, he said, several of BNP Paribas’ clients, including AMP Capital, had been going through transformations, which required a lot of help from their asset servicing providers. With AMP, the unbundling of the life insurance arm’s investments following that business’s purchase by Resolution life, required a lot of work behind the scenes.
For New Zealand, he said, there was also a lot of activity among clients, with several investor firms looking to outsource their custody and/or backoffice operations. BNP Paribas is the only global custodian which can support NZ clients with domestic fund services.
He expected a lot of this activity to translate into new business for asset servicing firms in the second half of this year.
BNP Paribas will roll out a new portal for Australasia next year to support the trend by big investors globally to increase their allocations to private markets.
“We have made considerable investment in this field historically,” Braga said, “and have a team in Sydney to support the APAC region.” The firm will be deploying new tools following a partnership with the European Asset Metrix, in which it has taken an equity stake. The tools will cover risk analytics, stress testing, benchmarking and other middle and front-office activities.
