The market turmoil which has put paid to the big US broker-dealers and precipitated a so-called “flight to quality” has given some fund administrators a welcome opportunity to extol the virtues of the universal banking model to potential clients seeking a safe haven for their assets.
BNP Paribas Securities Services is one such player promoting the peace of mind to be gained from doing business with a firm backed by a banking parent with an AA+ credit rating from Standard and Poor’s. “Such a rating is a rare commodity these days,” says CEO, Jacques-Philippe Marson.
Another selling point touted as unique is the company’s level of expenditure on IT development, which he claims is twice as much as the average of the competition.
While the latter claim might be hard to verify, it is clear that simply responding to the impact of developments such as the Markets in Financial Instruments Directive (MiFID) in Europe would sorely test the IT budget of any serious asset-servicer, let alone one pursuing the global expansion ambitions of BNPPSS.
“We will build on our position as the premier European asset-servicing provider and bring that capacity to Asia,” says Mr Marson. “We have built new global custody platforms. Nobody has invested in the industry over the past 25 years to rebuild technology for global custody. It was fairly expensive and now we are rolling out that technology on a global basis.”
He contends that (prior to the global financial crisis), the big global custodian competitors had the big money to spend on new technology but do not anymore.
Multi-local approach
In line with the company motto “the closer the better”, BNP Paribas is busily trying to establish itself in as many major regional markets of the world as it can. “We look at where the bulk of the activity is from either a transaction basis or an asset basis. Then we establish a local presence with local players, to gain the capacity to help our clients to benefit from the local knowledge and to expand their business with the help of that local knowledge,” he explains.
This “multi-local” approach has led to the firm setting up a local presence – usually a branch office - in 25 countries and providing global coverage of 92 markets. Most recently, in November BNPPSS announced a joint-venture partnership with Sundaram Business Services (SBS) to provide securities services, including fund accounting and transfer agency to both domestic and off-shore investors in India. The new joint-venture, which will be called Sundaram BNP Paribas Securities Services, is 49 per cent owned by BNPPSS and 51 per cent owned by SBS. It builds on an existing strategic partnership between the two groups established in 2005 and is expected to become operational in the first quarter of 2009.
Mr Marson maintains that India is one of the most rapidly developing markets in the world and will continue to grow at 5-6 per cent even through the market turmoil.
Over the past 18 months, BNP Paribas has opened new offices in Bahrain, Singapore, Poland and Hungary. A targeted 14 per cent increase in business revenues in 2009 is predicated mainly on growing the firm’s pan-European activities.
With 1300 employees in four centres the UK is cited as a key location and engine of growth. “In 2009, we will focus on Asia and on South America and to some extent North Africa,” adds Mr Marson. “It is expected that by 2012-13, we will add another eight to 10 key emerging markets in Asia including China, Taiwan, South Korea and also grow rapidly in markets such as Vietnam.”
In the US, BNPPSS is concentrating on winning administration mandates from hedge funds. The firm first established a presence in America 10 years ago to offer financing to Wall Street broker-dealers. Then, three years ago the investment bank of the BNP Paribas Group decided to outsource to the securities services arm its middle and back-office activities in the US.
“The big custodians have not been good at responding to the needs of the hedge fund industry and we have been able to start on a niche basis delivering a fund administration service to hedge fund managers. That business is growing very nicely.”
Mr Marson maintains the hedge fund industry is doing what traditional asset managers should be doing which is providing total return.
“Traditional investment management has become too concerned with benchmarks. It should rather be about deciding what investment is right at a given time to provide total return. If you start regulating hedge funds, all investments will be benchmarked against market indices and this is not a guarantee of performance as you can see in the current environment. Investments that are benchmarked drop in line with the market. Hedge funds are also losing money because they are facing a significant crisis but to a much lesser extent.”
