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What to expect in 2018
What to expect in 2018
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What to expect in 2018

13/12/2017

With new regulations and changing technology on the horizon, 2018 will be a pivotal year for the financial industry.  The heads of our four new client lines share their predictions and insights for 2018

 

image_bp2s_bruno-campenon-round_2017-12-19.png

Bruno Campenon, Head of Financial
Intermediaries & Corporates

Transformation of collateral management

The collateral management space is progressively transforming both in terms of sophistication and size. The successive waves of regulation are prompting more collateralized operations. This will demand more advanced services that range from collateral optimisation to collateral transformation and will create the need for ancillary services such as initial margin calculation and reconciliation. In this new and fast-changing landscape, the winning actors will be those who combine these services with an established connectivity to both the buy and sell-side.

Sell-side outsourcing

While the buy-side has already outsourced much of its back and middle office processing, the sell-side has remained more 'in-house' - although often relying on agents for clearing, custody and settlement.  However, the ever growing cost of technology and regulation is causing sell-side firms to look more closely at outsourcing once more.  We expect that, in 2018, a major global investment bank will outsource its entire post-trade activity.  This will become the accepted operating model for global sell-side firms and the resulting mutualisation of costs will be a major factor in restoring profitability to this industry.

image_bp2s_arnaud-claudon-round_2017-12-19.pngArnaud Claudon, Head of Asset
Managers

MiFID II – a slow start but major long-term impact

Markets in Financial Instruments Directive II (MiFID II) comes into force as of 3 January 2018. It represents one of the biggest overhauls of financial regulations in our industry.  We predict that it will take until summer 2018 before all players are fully ready.  MiFID II may lead to new fee models at different levels: investment research costs, execution fees, ongoing charges.

Fewer mid-sized asset managers. More boutiques and larger size firms

Our industry will see increases in the number of boutique firms -particularly ones that consistently outperform in a niche expertise- and in the number of large size firms. Large size firms –above USD 300 bn AUM – are increasingly in an industrialisation approach: in an environment of pressure on margins and regulatory cost, large asset managers are looking into both rationalising their fund range and being present in active and passive management.

It is key in this transformation phase to rely on a multi-offering in multi locations and local to global partner.

Technology will influence considerably fund distribution

Blockchain / DLT technology will make the KYC, due diligence and subscription - redemption transaction processes - more efficient. Artificial intelligence and analytics will facilitate portfolio construction and new product offerings. While robo-advisors will be part of the institutional clients’ landscape, which are increasingly demanding “high-quality, technology-enabled" investment solutions.

image_bp2s_florence-fontan-round_2017-12-19.pngFlorence Fontan, Head of Asset
Owners

Data starts to be fully exploited with practical applications

Institutional investors create quintillions of data bytes every day. Priorities are changing from storage and accessibility of this data to its interpretation and use. Firms are hiring data scientists to drive breakthroughs such as machine learning and natural language processing, where computers are able to make sense of human language. These tools will start to be applied to unstructured data – anything from satellite images to social media chat – with the goal of more informed decision-making in the front office and beyond. 

Sustainability – regulation starts to bite

We see 2018 as the year when disclosure requirements start to impact the E of ESG. Regulation and market practice will result in better quality ESG data and metrics.

The Task Force on Climate-related Financial Disclosures (TCFD) will reveal how companies expect to be impacted by the transition to a low-carbon economy. TCFD is voluntary but we anticipate further regulatory reporting requirements, following the lead of Article 173 of the French Energy Transition Law, which was passed in the summer of 2017.

image_bp2sian-lynch-round_2017-12-19.pngIan Lynch, Head of Alternative
Investors 

Alternatives continue to attract assets

Assets under management (AUM) of the global hedge fund industry reached a new record of USD 3.253 trillion in October 2017. We predict AUM will continue to grow for alternatives in 2018 driven by increases in institutional allocations. As equity markets continue to break record highs investors will look more at absolute returns that can provide more protection in a prolonged drawdown. In the quest of diversified alpha, exotic beta and critical investment outcomes, alternative investments are evolving from niche strategies to become a central part of investment portfolios.

The user experience goes digital

Across the alternative fund administration industry, the user experience will continue to digitise with greater velocity in 2018. Taking a cue from financial services in the retail space, we will see the delivery of services becoming more bespoke and individualised for the end user. Data science and behavioural analytics will drive this innovation in service delivery and will dramatically enhance the user experience.

Global macro strategies make a comeback

The surge of interest in alternative financing and private credit strategies witnessed in 2017 will slow as interest rates rise in 2018. We can expect central banks to normalise their monetary policies (e.g. short-term interest rates will continue to rise in the US and the ECB will stop its quantitative easing effort). While this will dampen the growth of debt markets, increased market volatility, combined with robust economic growth, will allow global macro strategies to thrive in 2018.

 

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