REGULATION, NEW BUSINESS MODELS AND ETFS: THE KEYS TO THE ASSET MANAGEMENT INDUSTRY FOR 2019

  • According to BNP Paribas Securities Services, ETFs will continue to gain market share in the Americas.
  • A big challenge that the entire industry will have to face will be to improve the returns it is offering to investors.
  • From BNP Paribas Securities Services believe that managers will have to readjust their investment models and products to cope with an environment with greater volatility.

The application of new regulations and constantly changing business models will make 2019, in the opinion of BNP Paribas Securities Services, a crucial year for the financial industry at any point of the geography.

According to the regional managers of BNP Paribas Securities Services, for the area of the United States, the managers continue with the focus on analyzing the opportunities they have to make their offices more efficient. “As US managers adapt their business models to this changing environment, largely to deal with lower margins, the challenge of generating alpha, or responding to increased regulatory oversight, we believe that many of them will adapt and eventually expand their commercial approach to a broader service, “says the firm.

According to a report by McKinsey & Company, the costs of operations and technology of managers in North America almost doubled between 2007 and 2016. The pace of these costs will continue to rise, particularly for active management firms, so both the companies will have to value more the automation and the possibility of outsourcing the investment operations.

Regarding ETFs, BNP Paribas Securities Services believes that they will continue to gain market share. “In the Americas, we anticipate that institutional investors will increase their allocations to ETFs as they become more comfortable with the liquidity of this asset class. In addition, we see that there will be continuous innovation in the types of ETFs that are offered as managers continue to find new ways to innovate, differentiate and distribute their product, “they say.

The other great challenge that the entire industry will have to face will be to improve the returns it is offering to investors. In fact, in recent years, hedge funds have had to adapt their models to look for more opportunities in a low yield environment. BNP Paribas Securities Services believes that managers will have to readjust their investment models and products to face an environment with greater volatility. “We believe that 2019 will serve as a test to see which hedge fund managers can successfully adjust their strategies to continue to succeed in this new, more volatile environment,” he says.

The last aspect highlighted by BNP Paribas Securities Services is the weight that asset owners in Latin America are taking, since they are diversifying and becoming more cross-border investors. “It is expected that cross-border allocations of Latin American pension funds and institutional investors, after some years of steady growth, will increase further. Brazilian pension funds, in particular, are actively seeking new opportunities to diversify their investment strategies beyond national assets, “he says.

Within these institutional investors, the firm pays special attention to insurance companies and stresses that, for the next year, they will continue their search for yields. “We see this growth in the context of market consolidation, disintermediation through non-traditional channels and the permanent challenges to comply with stricter local regulatory frameworks,” conclude BNP Paribas Securities Services.

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