Industry specialists discuss how this year saw the economy fight back against COVID-19 and what challenges and opportunities it brought the asset servicing sector
It was a truth universally acknowledged at the end of 2020 that the year 2021 would be a year of economic recovery; a year like no other, certainly in peacetime. If 2020 knocked the world for six, 2021 was the year that scientific endeavour allowed the economy to fight back against the far-reaching effects of the COVID-19 pandemic.
At the stroke of midnight on 31 December 2020, many countries knew they faced a tough few months ahead. However, little by little, the year got back to normal; or at least a “new” normal, for most. Though virtual conferences and hybrid working models are still the reality for many, in-person conferences and returns to the office became more frequent as the year went on, with many willing and ready for the change.
“Virtual platforms have enabled us to achieve resilience and we cannot imagine how difficult it would be to run businesses without them. Certainly over the past few months, Teams and Zoom fatigue has set in,” says Mike Hughes, global head of service lines at Ocorian.
“As effective as the virtual platforms are, our teams have shown a desire to come back into the office to collaborate with clients and colleagues in the traditional environment,” he adds.
Whether it be the rise in environmental, social and corporate governance (ESG) awareness, investment and initiatives, or the increasing interest in digit assets, there has been much to discuss this year — on a screen or face to face.
ESG: Fighting for our planet
The circumstances thrust upon us in both 2020 and this year have helped springboard the conversations around ESG, whether this be through lessening our carbon footprint via the necessity to stay at home, or the pause for thought that was underpinned by the slowdown in the pace of everyday life.
But even before the pandemic, it was common knowledge the Sustainable Finance Disclosure Regulation (SFDR) regulation, or green taxonomy, would be initiated, and was eventually put into place this March.
“SFDR was one of the biggest regulatory topics of the year,” says Jean-Pierre Gomez, head of regulatory and public affairs at Societe Generale Securities Services.
“A lot of time was spent to understand Level 1 in order to comply with the first obligation to classify financial products (including funds). Since 10 March 2021, all European funds are classified in three main categories: fully green, lightly green, or not green at all.”
If SFDR created a major green impact for European asset management, calls for international environmental change became deafeningly clamorous in the aftermath of the 2021 United Nations Climate Change Conference, more commonly known as COP26. And with global influence, financial services did not escape, but mostly embraced their responsibility on this front.
“The future of finance is based on what happens now — and firms have an obligation to consider material ESG factors, such as climate change risks and impacts, as part of their investment processes going forward,” affirms Janine Hofer-Wittwer, senior product manager, financial information at SIX.
These investment processes, or at least a move in that common direction, are reflected in the statistics. A recent Broadridge Financial Solutions report has revealed assets in dedicated ESG mutual funds, exchange-traded funds, institutional mandates, and private funds are on track to grow from US$8 trillion today to as much as $30 trillion by 2030.
From a vendor’s perspective, Bhagesh Malde, global head of real assets at SS&C Technologies, says: “Whether ESG reporting, the collection of ESG data or devising an ESG policy, all of these factors will impact investor demand, such as what techniques 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 ‘nice to have’ to attract investments for large institutional investors.”
Another takeaway from 2021 when regarding the changing attitudes toward ESG and ESG investment is the increased call out of greenwashing, perhaps not a term so widely talked about, even as recently as 2020.
As Jag Alexeyev, head of ESG insights at Broadridge Financial Solutions, outlines: “Greenwashing has emerged as a key reputational risk that firms must address. Improving a manager’s sustainable investment capabilities, enhancing transparency, and amplifying communication of results can help establish credibility and strengthen client relationships.”
Let’s get digital
The acceleration of digital innovation as well as the rise in popularity of digital assets also became big talking points this year. COVID-19, or more rightly, the logistics it necessitated, accelerated the change.
“While digitisation may have been elevated because of the pandemic, we think it is here to stay,” says Jay Peller, head of fund services at Citco Fund Services (USA). “We are in a new working environment whereby many alternative managers have needed to move tasks, such as the initial subscription and capital commitment process, into the digital space — completely removing paper from the process.”
“The pandemic-driven acceleration in the adoption of cloud-based technology has made this year a very significant one indeed,” says Vicky Dean, managing director of Europe, Middle East and Africa at Goal Group. We have seen a marked change in attitude even in areas of asset servicing that are traditionally very reliant on paper. A digital-first approach is now much more common.”
She adds: “The pandemic opened the industry’s eyes to the power of the cloud and removed many barriers to adoption, both physical and cultural.”
Back in September, Association for Financial Markets in Europe (AFME) panellists discussed the developments of the digital asset space at the association’s Virtual Post-Trade Conference in September.
Etay Katz, partner at law firm Ashurst, said: “I would like to compliment the bold European initiative on digital assets. It is very ambitious and perhaps precisely the approach that is needed.”
One of the most ambitious this year was arguably the consortium of institutions, including Euroclear, which successfully experimented with central bank digital currency for settling French treasury bonds on a test blockchain.
The experiment, which was commissioned by the Banque de France, included Agence France Trésor, BNP Paribas CIB, Crédit Agricole CIB, HSBC, and Societe Generale.
The objective of the experiment was to assess if a wide range of operations and functionalities can be run on a blockchain platform and identify, from a user point of view, the added value of blockchain technology.
The experiment covered a range of core securities settlement operations including securities issuance, primary market and secondary market trades, liquidity optimisation mechanisms such as repo and interest payments.
The initiative also tested whether a blockchain platform could co-exist and interoperate with existing market infrastructure — and the consortium proved it did.
Still standing
As we enter the final weeks of the year, SS&C Technologies’ Malde reflects: “From a business plan perspective, 2020 was relatively dry for new launches or investment activity in existing funds. However, I am pleased to report 2021 has seen a flurry of new launches, new strategies.”
Ocorian’s Hughes cites Preqin figures: “Preqin predicts that 2021 is on track to be a record year for fundraising for Europe-based alternative asset managers, whilst equity and debt capital markets have performed strongly. The alternatives industry continues to experience double digit growth each year and we believe there will be sustained growth in these market segments for at least the next three years.”
Citco’s Peller expands on the understanding that 2021 has been an outstanding year for alternative assets and the increase in outsourcing has been key to this.
Peller elaborates: “Throughout 2021, COVID-19 has accelerated the trend in the alternatives industry towards outsourcing and, as a result, we saw a big uptick in inflows. At Citco, we saw our assets rise above $1.8 trillion for the first time in our history, and we see no reason for this growth across the sector to slow as we head into 2022.”
Ocorian’s Hughes closes: “The pandemic has been a truly global test for everyone involved. Yet many markets have outperformed expectations. Despite the headwinds and political turmoil this has been a stellar year for outperformance.”
