After the barrage of regulations precipitated by the financial crisis, France’s three asset servicing giants are at last free to concentrate on gaining new business. Mark Latham reports.
In the decade since the financial crash, the financial services industry has seen a seemingly never-ending stream of new regulations, including the European Market Infrastructure Regulation (Emir), AIFMD, MiFID II and Ucits V – to name but four.
Taken together with a decade of low interest rates, the need for innovation and efficiency has fuelled ever-increasing competition among France’s three major asset servicing giants: BNP Paribas Securities Services (BNPPSS), Caceis Investor Services and Societe Generale Securities Services (SGSS).
For Franck Dubois, head of France and Belgium for BNPPSS, business has been good over the past year with the winning of a number of significant mandates.
This includes what he terms a “flagship win” of a custody and depot bank mandate with Carmignac, one of France’s largest asset management boutiques. Winning the contract from previous holder Caceis saw the migration of €44 billion of assets to BNPPSS’s books in February.
Another significant deal was the acquisition of Janus Henderson Investors’ US-based middle and back-office operations, providing BNPPSS with 40 Act fund administration capabilities.
“We are going to use this to build up our third-party 40 Act capacity in the US,” says Dubois. “This deal is very important to our growth as it will complement what we already do in the US in terms of custody and clearing.
“We were already a US player connected to the local infrastructure and regulated by the US authorities. The only thing we were missing is this capacity to administrate US mutual funds.
Having our own capacity to support our clients to distribute in the US was key for us to have a comprehensive global offer to clients.
“In addition to new business with DWS announced in June, which is the largest fund administration mandate in the industry to date, the new business with Janus Henderson shows that we are growing globally and reinforcing our global presence, so we are truly French global players who can service our clients everywhere they invest or everywhere they distribute.”
Thanks to the Janus contract, BNPPSS has added 140 people to its 300-strong US workforce. “Moving up to employing 440 people in the US has had quite an impact,” says Dubois. “We are now a non-US player which is locally connected and able to support the full range of services in the US.”
An industry trend that Dubois highlights is the significant growth by many of the large European industry players in their Luxembourg franchises. This applies, he says, to BNPPSS, which has been “growing our Luxembourg base very significantly”, boosted by the DWS deal, which will contribute €240 billion of assets in Luxembourg and Germany.
Dubois adds that the impact of Brexit on the industry is already making itself felt. “We are seeing some actors launching some new funds in continental Europe, many of them in Luxembourg or Ireland, because they need to have a continental Europe domicile to continue to develop post-Brexit. As a result, Luxembourg and Ireland are growing fast.
“Our strategy is that we want to continue to grow in our home market in Europe, which is a very fast-growing and dynamic market. We also want to accelerate our growth in the US and we want to develop in Asia, where we have been for more than ten years now. Of course, it is also important that we continue to grow in France, because we are a French bank and this is our home market.”
In Europe, BNP Paribas is targeting growth in Germany, the UK, the Nordics and the Netherlands in particular, at a group level, as part of its 2020 development plan announced last year.
“The pressure on cost is definitely one of the challenges for everyone in this business and as we are part of the value chain, the pressure is on us as much as it is on asset managers and asset owners,” says Dubois. “Institutional business is becoming more and more competitive. To win a mandate now is a very competitive game and fees and conditions are even more difficult today than they were a few years ago.”
Over at Caceis, chief executive Jean-François Abadie is similarly upbeat. “Without giving anything away, we are anticipating a good year. I think we are going to post excellent results,” he says. “At the mid-year point, we were already over budget with a significant increase in all businesses.
“Overall it has been a good year. We have been very active in terms of commercial development. Commission development has also been good and on the treasury side, we have been managing this very actively, which compensates for the still dreadful interest rates.”
Abadie says he was pleased to see “a good variety of developments in new areas”. These include securing important business in Italy, Germany and Switzerland and the UK.
The UK client has not been named – all Abadie will say is that it is not a private equity house – but winning the firm’s first contract with a UK-registered fund is a good start, he says.
“In business, starting somewhere is often the hardest contract to win because you have to build some kind of credibility and you have got to work a lot,” he adds.
“Once you have got noticed in a new region, you have got to wait a bit because the other players in the region are going to wait for the risk-taker to confirm that it was a good move.
Then things start picking up speed.”
Caceis’s recent expansion in Italy means it now has a full-service fund administration ability (for example in custody services) “which was not the case two years ago”.
While Caceis has not been involved in any significant acquisition over the past 12 months, Abadie says that the firm is “actively working on various opportunities”.
“The last year has been good in terms of business development, but on the acquisition front we are clearly in the market to look at the opportunities,” he explains.
“We have been developing extremely well in the organised derivative market and equity finance. We have been moving from classical asset servicing towards being a global provider of front-to-back services, including execution services and so forth.”
Abadie agrees with Dubois at BNPPSS that competition is about as tough as it has ever been. “Margins are going down in any case, but to maintain them as much as possible, the fight is pretty severe with our friends and competitors,” he says. “This is because there is huge competition in the market and of course, we do not have captive clients. In fact, Amundi is an extremely demanding client – which is good, as we cannot afford any complacency in delivering our services.”
Etienne Deniau, head of strategic marketing at Societe Generale Securities Services (SGSS), says business has been “quite positive, with a good dynamic” in the past 12 months.
“Our commercial results globally are in advance of our targets for 2018,” he says. “Luxembourg and the UK have been particularly dynamic this year.
“In the UK, we have invested a lot and targeted financial intermediaries, asset managers, private wealth managers, and that investment has paid off.”
SGSS gained an important mandate with the Dutch asset management firm Transtrend – an achievement that Jean-François Marchand, SGSS’s commercial director for France, said stemmed from the bank’s ability to provide AIF depositary services.
The Dutch asset manager has funds domiciled in both Luxembourg and Dublin; Marchand says that securing this mandate was a “significant” deal for services in Luxembourg.
“We are developing a lot in the Irish market, where we now provide the whole range of fund services out of Dublin and where we now employ around 50 people,” says Marchand.
On the impact of Brexit on the industry, the number of asset management staff being moved from the UK to France (or elsewhere in continental Europe) has so far been “tens, not hundreds”, says Marchand. “We are seeing small teams coming to Paris but not huge numbers.”
Referring to another of SGSS’s important mandates, this time with UBS subsidiary La Maison de Gestion, he says: “We have now moved up the value chain to offer front and middle-office solutions. We are not even the custodian: we have just delivered a portfolio management system, a front-office system.”
This article first appeared in Funds Europe
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