The COVID-19 pandemic has accelerated changes that were already occurring in the Australian superannuation industry, with digital solutions no longer a ‘nice to have’ but rather a necessity and funds increasingly seeking efficiencies through consolidating and outsourcing, says BNP Paribas Securities Services.
Speaking at the recent Fund Business 7th Fund Summit, David Braga, CEO Securities Services Australia and New Zealand, said the asset servicing sector will play a major role in supporting funds through regulatory change, and helping them to adapt to market uncertainty and a changing operating environment.
“We see the custody and asset servicing sector as key to helping super funds as they continue their transformation,” he said.
“Looking forward, we will see more mergers and acquisitions, the need for additional data to support the regulatory reporting that organisations like APRA are asking for and expecting, and clearer information on environmental, social and governance (ESG) factors. All of that drives questions around collaboration and change.”
Mr Braga said part of the challenge for super funds was the need to drive change in a complex working environment where many employees were still working remotely.
“Working from home works well for activities that are suited to individual concentration and focus. But collaboration is harder to achieve this way. As a result, because of the continued decentralised workforce, we must all continue to adapt,” he said.
Does size really matter?
Given the acquisition activity that is currently taking place in the super fund industry, Mr Braga foresees a potential ‘barbelling’ effect that would see the industry move towards very large funds on one end and successful smaller funds on the other.
“We have seen this happen in global asset management – there are smaller, niche managers who don’t have $1 trillion in FUM but they have strong expertise and strong conviction and we will likely see this play out in the super fund market.
“In future, most funds should be able to access the types of services they want to put together by having the right ecosystem of providers to assist them, whether their preference is towards scale or specialism.”
Preparing for tomorrow
Nadim Jouhid, Head of Investment Solutions at BNP Paribas Securities Services, added that a major priority for clients during the pandemic was business continuity planning and ensuring critical projects were not delayed.
“When the pandemic first hit, we saw a major impact to the way we all work and for some this created stress and unease. As a result of a great deal of preparation and communication, BNP Paribas handled this well. Yet we saw many of our clients were facing the challenge of how they could continue operating effectively.
“Beyond implementing technology such as instant messaging and videoconferencing softwares, clients also sought help to ensure they were ready for tomorrow, by pushing ahead with projects to rationalise front office platforms, for example,” he said.
Mr Jouhid said many super funds were now actively looking for ways to simplify their whole business and strengthen their client offering.
“Some are looking at their decision making and front office tools and ways to simplify how they connect with the rest of the world. We have also seen clients focus on increasing diversification through private equity, real estate and infrastructure in order to maintain their alpha and there have been a lot of enquiries around sustainable investment.
“In addition, there has been a spike in funds seeking to outsource some of their activities. Dealing desks, for example, are one area where clients can gain wider access and a more flexible cost base by using an outsourced model. We have been supporting clients on that journey in their investment value chain.”
Digital solutions and data at the forefront
In terms of technological solutions, Mr Jouhid said the majority of super funds were now putting digital and automation at the forefront, either by investing in their own solutions or by partnering with fintechs and software providers.
“Today, there are some very exciting fintechs out there that can help to enhance the client experience. Clients look to partner with us but we are also partnering with organisations that can build on our capabilities. For example, we are currently working with a partner that is leveraging machine learning to assess the effectiveness of ESG initiatives,” he said.
BNP Paribas Securities Services is also continuing to invest in its data offering for clients.
“Data has always been important – we haven’t seen a particular increase during COVID-19 but it is the future for our clients and ourselves and we need to ensure we are leveraging the right tools,” Mr Jouhid said.
In conclusion, he said there should be a number of areas of focus for super funds looking forward.
“Look at what you can automate internally, ensure you have the right digital and data tools in place and, if necessary, seek external help. There are certainly enough partners out there that can help with that journey.”
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