Feature Article on Asset Service Times

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Industry experts explain how this year the economy has fought back against COVID-19 and what challenges and opportunities this has brought to the asset servicing sector

It was a universally recognized truth at the end of 2020 that the year 2021 would be a year of economic recovery; a year like no other, certainly in times of peace. If 2020 hit the world for six, 2021 was the year when scientific effort enabled the economy to fight against the far-reaching effects of the COVID-19 pandemic.

At the stroke of midnight on December 31, 2020, many countries knew that they were going to face difficult months. However, little by little, the year returned to normal; or at least a “new” normal, for the most part. While virtual conferences and hybrid work models are still the reality for many, in-person conferences and back-to-the-office meetings have become more common over the year, with plenty of willingness and readiness for change.

“Virtual platforms have allowed us to achieve resilience and we cannot imagine how difficult it would be to run businesses without them. Certainly, over the past few months, team and Zoom fatigue have set in says Mike Hughes, Global Head of Service Lines at Ocorian.

“As effective as virtual platforms are, our teams have expressed a desire to return to the office to collaborate with clients and colleagues in the traditional environment,” he adds.

From increased awareness, investment and environmental, social and corporate governance (ESG) initiatives, to growing interest in digital assets, there has been a lot to discuss this year – on a screen or face to face.

ESG: Fighting for our planet

The circumstances forced upon us in 2020 and this year have helped start the conversations around ESG, whether through the reduction of our carbon footprint via the need to stay at home, or the pause for reflection that has been supported by the slowing down of the daily rhythm of life.

But even before the pandemic, it was common knowledge that the Sustainable Finance Disclosure Regulation (SFDR), or green taxonomy, would be launched and was finally implemented in March.

“SFDR was one of the biggest regulatory topics of the year,” said Jean-Pierre Gomez, Head of Regulatory and Public Affairs at Societe Generale Securities Services.

“A lot of time was spent understanding Level 1 in order to comply with the first obligation to classify financial products (including funds). Since March 10, 2021, all European funds are classified into three main categories: fully green, slightly green or not green at all.

While SFDR has created a major green impact for European asset management, calls for international environmental change have become deafening in the aftermath of the 2021 United Nations Climate Change Conference, more commonly known as COP26. And with global influence, financial services have not escaped this, but above all assumed their responsibility on this front.

“The future of finance is based on what happens now – and companies have an obligation to consider material ESG factors, such as the risks and impacts of climate change, as part of their investment processes. investing in the future,” says Janine Hofer-Wittwer, senior product manager, financial information at SIX.

These investment processes, or at least a movement in this common direction, are reflected in the statistics. A recent report from Broadridge Financial Solutions revealed that assets in ESG mutual funds, exchange-traded funds, institutional mandates and private funds are on track to grow from US$8 trillion today to US$30,000. billion dollars by 2030.

From a supplier’s perspective, Bhagesh Malde, Global Head of Real Assets at SS&C Technologies, says: “Whether it’s ESG reporting, ESG data collection or ESG policy design, all of these factors will impact investor demand, such as the techniques that will be used to manage the process and how quantitative and qualitative data will influence investment decisions. ESG-related data is increasingly ‘table stakes’ rather than ‘nices to have’ to attract investment from large institutional investors.

Another takeaway from 2021 when it comes to changing attitudes towards ESG and ESG investing is the increased call for greenwashing, perhaps a term that isn’t talked about so widely, even as recently than in 2020.

As Jag Alexeyev, Head of ESG Analytics at Broadridge Financial Solutions, explains: “Greenwashing has become a key reputational risk facing companies. Improving a manager’s sustainable investing capabilities, improving transparency and amplifying results reporting can help establish credibility and strengthen client relationships. »

Let’s go digital

The acceleration of digital innovation as well as the growing popularity of digital assets have also become big talking points this year. COVID-19, or more accurately the logistics it necessitated, accelerated change.

“While digitization may have been accelerated due to the pandemic, we believe it is here to stay,” says Jay Peller, Head of Fund Services at Citco Fund Services (US). “We are in a new working environment in which many alternative managers have had to move tasks, such as the initial capital underwriting and commitment process, into the digital space, completely removing paper from the process.”

“The pandemic-driven acceleration of cloud-based technology adoption has made this a very important year,” said Vicky Dean, Managing Director Europe, Middle East and Africa at Goal Group. We have seen a clear shift in attitude even in areas of asset management that have traditionally been very paper-dependent. A digital-first approach is now much more common. »

She adds, “The pandemic has opened industry’s eyes to the power of the cloud and removed many barriers to adoption, both physical and cultural.”

In September, panelists from the Association of Financial Markets in Europe (AFME) discussed developments in the digital asset space at the association’s virtual post-market conference in September.

Etay Katz, partner at law firm Ashurst, said: “I would like to congratulate the bold European initiative on digital assets. It is very ambitious and it is perhaps precisely the approach that we need.

Arguably one of the most ambitious this year was the consortium of institutions, including Euroclear, that successfully experimented with central bank digital currency to settle French treasury bills on a test blockchain.

The experiment, commissioned by the Banque de France, involved Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC and Société Générale.

The objective of the experiment was to assess whether a wide range of operations and functionalities can be performed on a blockchain platform and to identify, from a user’s perspective, the added value of the technology. blockchain.

The experience covered a range of basic securities settlement operations, including issuance of securities, primary and secondary market transactions, liquidity enhancement mechanisms such as repos and interest payments.

The initiative also tested whether a blockchain platform could co-exist and interact with existing market infrastructure – and the consortium proved it.

Still awake

As we enter the final weeks of the year, SS&C Technologies’ Malde said, “From a business plan perspective, 2020 has been relatively dry for new launches or investment activity in existing funds. However, I’m happy to report that 2021 has seen a flurry of new launches, new strategies.

Ocorian’s Hughes quotes figures from Preqin: “Preqin predicts that 2021 is on track to be a banner year for fundraising for Europe-based alternative asset managers, while equity and capital markets borrowing recorded solid performances. The alternatives industry continues to experience double-digit growth every year and we believe there will be continued growth in these market segments for at least the next three years.

Citco’s Peller says 2021 has been a bumper year for alternative assets, and increased outsourcing has been key.

Peller said, “Throughout 2021, COVID-19 has accelerated the industry trend of alternatives to outsourcing and as a result, we have seen a surge in inflows. At Citco, we saw our assets exceed $1.8 trillion for the first time in our history, and we see no reason for this industry-wide growth to slow as we approach 2022.”

Hughes of Ocorian concludes: “The pandemic has been a true global test for everyone involved. Still, many markets beat expectations. Despite headwinds and political turmoil, this has been an outstanding year for outperformance.

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