“With the economics of the financial industry getting even harder, post-trade has become a battleground.”
David Pearson, head of post-trade strategy, Fidessa
The move to T+2 in Europe really lifted the lid on the inefficiencies in post-trade, particularly in affirmations and confirmations. While some are still burying their head in the sand, mistaking effectiveness for efficiency, we’ve already seen a number of asset managers move to affirming and confirming their trades directly with their brokers using industry-standard workflows. In 2016 we’ll see wide spread adoption of these work flows across the globe as market participants recognise the tangible benefits of achieving true efficiencies in post-trade.
Alternative investment opportunities will rise
“Investors will be looking for something new.”
Hugues Chabanis, domain manager, SimCorp
Investments in alternatives will continue to grow and take up a larger portion of assets under management (AuM). The continued low interest rate environment is still driving this trend, but other factors and a number of appealing characteristics of various alternative assets is certainly also playing a role. As investments increase to take up a larger share of AuM, so will the level of sophistication and control. Alternatives will not just be a small portion of the portfolio carved out and managed separately, but rather will play an important role in future portfolio construction and have to be seen and managed in the context of the portfolio.
Blockchain: first understand it, then use it
“Fund managers will need to understand new technologies such as blockchain.”
Jean Devambez, global head of solution, asset and fund services at BNP Paribas.
We will see an increase in technology usage in 2016 and blockchain will feature prominently in this development. As more and more industries such as banking and shipping adopt blockchain, the use of a public ledger of all recorded transactions, industry players will also need to understand the latest developments. The technology sector will be a key differentiator in 2016 as fund managers will need to understand new technologies such as blockchain, It is the role of custodians to help them understand how their world is changing, particularly when it comes to fund distribution.
Asset managers to feel Solvency II impact
“Handling these new requirements can be a challenge, not only for portfolio managers, but also for IT departments.”
Arne Jørgensen, domain manager, SimCorp
Solvency II requirements go live at the beginning of 2016 for all insurers in Europe. However, already now asset managers are feeling the impact, not only with regards to certain reporting requirements like the Tri-Partite template, but also on the investment decision making process. All insurers offering guaranteed insurance products need to meet certain revenue targets and Solvency II opens up for adding higher yielding investments to the asset allocation. As this comes with a risk, it has a higher Solvency Capital Requirement (SCR). SimCorp foresees that slowly but surely, investment guidelines will move towards SCR-based limits or risk budgets. Besides the ability to calculate SCR for the assets they are managing on behalf of insurers, this also means asset managers need to have a solid understanding of their clients’ businesses.
Buy-side uptake of big data analytics
“Technology in this space is moving beyond its ‘traditional’ role.”
Daron Pearce, CEO of Global Financial Institutions within BNY Mellon Asset Servicing
During 2016 we will see asset managers increasingly employ big data analytics. Such tools facilitate the provision of real-time information and generate actionable insights that help managers enhance business performance, increase efficiency and lower structural cost and risks. The application of these techniques to mutual fund distribution analytics and fund flows is already generating very real results. Technology in this space is moving beyond its ‘traditional’ role – operational, processing oriented – into the realm of Amazon-type insights into customer behaviours. Managers are able to access data on buying choices, investor demographics, churn rates, and use that information to focus their own development and sales strategies more effectively.”
Front office involvement in collateral management
“You can expect an ongoing trend towards tighter integration.”
Carsten Kunkel, senior manager, Legal Practice, SimCorp
With further regulation-driven collateral squeeze in sight, collateral optimisation becomes even more important. You can expect an ongoing trend towards tighter integration between the front office and a firm’s collateral management and administration system. More and more buy-side firms are looking to have a real-time overview of their collateral inventory accepted by their coun¬terparties to allow for a better view of the firm’s overall risk positions and exposures. In the long term, simulation capa¬bilities are expected to be incorporated in collateral manage¬ment solutions. This will help investment management firms simulate margin requirements for each trade, indicating the optimal type of trade needed to achieve margin reductions.
Cyber Security threat won’t ease up
“Security will continue to be a growing concern for all participants in all financial markets, it will not go away, it will get worse.”
Michael Cooper, CTO, BT
In 2015 there were numerous examples of institutions being compromised. In 2016 there will be no respite, as this looks set to continue. Sharing of information has become much easier and more efficient, access to high-grade computing and performance IT is now widespread. Equally, knowledge is more widely distributed. The consequence of this combination is that it has become easier to create issues and then profit from them. In a strange way, after such attacks, the market comes together to better manage their response to it. Financial markets are starting to pool knowledge and that pooling is one of the ways that we can get parity with criminal behaviour. Know your enemy and know what they can do before they do it.
A year to remember for hedge funds
“Hedge funds will bounce back very successfully next year and have a fantastic year of performance.”
Charles Bathurst, consultant to the board at SumiTrust Global Asset Services.
In response to the shocks hedge funds have faced over the past year, they repositioned themselves and there is a good place to benefit from growth in Europe and on-going growth in the US. Correction has taken place, and alongside this we have seen a huge amount of QE in Europe showing that markets are stabilising and looking for growth. 2016 will be the year hedge funds recover due to on-going changes in the market, even in an increased regulatory environment, the market will be more attractive than ever.
Strategic partnerships become essential
“Functioning across jurisdictions and regulations is a significant burden for fund managers.”
John Sergides, global head of business development & marketing, MUFG Investor Services
Managers will continue to partner with organisations who can provide multiple fund services across jurisdictions and regulatory environments and help them navigate the complex and evolving world of asset servicing. Historically, fund administrators have been seen as a necessary evil. However, more and more managers are now looking at fund administrators to help with their strategic goals. Functioning across jurisdictions and regulations is a significant burden for fund managers, which is why firms are increasingly turning to the largest providers who can deliver both multiple services and cross jurisdictional solutions in a ‘partnership’ driven approach.”
A better securities lending experience
“After products have been cleared and regulations implemented we now have more time to look at margins.”
Joshua Satten, director of business consulting, Sapient
Once products have cleared and regulations have taken their toll, there will be a greater emphasis on the collateral space. In that space the buy-side will be looking at collateral rehypothecation, optimisation and the clearing of repo. These three factors together will provide for a better securities lending experience and switch the focus from saving money to making money. 2016 will also lead to an increase in margin transit utilities (MTU) between DTCC and Euroclear. How this will affect the market place in both the US and Europe will reveal a lot about how these two markets can work together more effectively.