Fund managers and asset owners were developing an “insatiable appetite” for data as risk management comes to the fore, according to Madhu Gayer, BNP Paribas, head of investment reporting and performance.
The Singapore-based Gayer, in New Zealand recently consulting with clients, said factors such as regulatory compliance, portfolio stress-testing, post-GFC risk awarness, and ethical investing were driving demand for data analytics in the investment industry.
And he said custodians were well-placed to gather and interpret the ever-expanding range of market data on behalf of clients.
“The area around risk management is so much richer in data now than seven years ago when Lehman Brothers collapsed,” Madhu said. “There’s also more volume of data – in fact, some asset managers and owners can get overwhelmed with the noise.”
He said the demand is pushing custodians out of their traditional background role into more active duties in clients’ middle- and front-offices.
While custodians retain the core monitoring duties, Madhu said investors are now seeking their help around setting objectives, portfolio construction and implementation.
“We’re not replacing [client] in-house functions,” Madhu said. “We’re augmenting their expertise.”
For example, he said clients are increasingly looking to incorporate environmental, social and governance (ESG) factors into their investment strategies.
Madhu cites figures from a recent Asia Socially Responsible Investing Association survey showing 72 per cent of managers and asset owners in the region are, or intend to, integrate ESG factors their investment processes.
“It’s not just about being ethical,” he said. “But it’s sound business practice. Investors need to understand the long-term sustainability of the companies they invest in – it can impact the bottom line.”
According to Madhu, BNP can now drill down into comprehensive ESG data about virtually every company, which investors can use in their decision-making processes.
“We can score companies around many ESG factors such as carbon footprints or gender equality,” he said. “That’s not something you would’ve typically seen custodians doing.”
As investors face tighter regulation in most jurisdictions, clients – particularly those with a global reach – are also turning to custodians for guidance, Madhu said.
He said keeping up with the changing demands of multiple regulatory regimes could be a time-consuming task for investors with documentation alone a challenge.
But Madhu said custodians could step into the breach with services such as multi-country fact sheets or other tailored compliance documents.
“There is more regulatory convergence across the world, but it’s not uniform yet,” he said.
Nonetheless, Doug Cameron, head of BNP Paribas NZ, said as New Zealand’s regulatory regime moves closer to other markets, that could open up opportunities offshore for local institutional investors.
“We’ve definitely seen some interest from a couple of our clients,” Cameron said. “For example, they’ve been asking us about UCITS [Undertakings for the Collective Investment of Transferable Securities – a European fund standard] and what they need to know if they want to operate in Europe.”
He said while New Zealand has been late to regulate its financial services markets, it has also been able to learn from and avoid some of the mistakes made in other regimes.
“We can see how [regulations] play out in other locations,” Cameron said.
At the same time, Madhu said other jurisdictions are also watching the practical outcomes of New Zealand’s Financial Markets Conduct Act (FMC) regulations – such as the ‘risk indicator’ model due to be implemented later this year.