“Asset managers are facing the dual challenge of staying compliant with evolving regulations while managing their portfolios efficiently and delivering value to investors,” said Mr Lollieux. Asset managers and fund boards must include sound governance, robust valuation policy and appropriate liquidity management policies when implementing their investment fund products, while facing increasing oversight duties and reporting requirements.
Asset managers are facing the dual challenge of staying compliant with evolving regulations while managing their portfolios efficiently and delivering value to investors.
Adapting investment vehicles to new clients
The recent revisions of the AIFMD and the ELTIF, as well as local Luxembourg investment vehicles, give asset managers the tools they need to deliver fund products investing in a wide range of asset classes, distributed to a broad range of investors. However, these evolving investment vehicle rules need to be incorporated seamlessly into a variety of processes.
Wealthy individual investors are increasingly drawn to the likes of private equity, real estate, and private debt investments as they look to diversify their portfolios. Asset managers are keen to service this emerging client base, but are aware of the unique challenge of operating and distributing alternative funds to individuals. They tend to be less sophisticated than institutional investors that have traditionally subscribed to these products, and consequently they have different information and investor protection needs.
LMTs and valuation
Public authorities want to facilitate this investment as it will spur economic growth, innovation, and the green transition, as well as mitigating the coming public pensions crunch. However, this desire is complemented by regulatory changes aiming to capture the specific features of evolving investment products, driven by the essential need of protecting investors and building trust in these products.
Offering less liquid investment strategies to a larger scope of investors requires sound valuation and appropriate liquidity management. Regulation is explicitly considering the use of liquidity management tools, such as swing pricing, gating, or side pockets to name a few. On the other hand, fund valuation policy is subject to increased regulatory scrutiny, in particular how to value fewer liquid assets, valuation under stressed conditions, or the definition of appropriate fund dealing frequency that takes account of portfolio liquidity.
Expertise and technology are key
“Leveraging on expertise, infrastructure, and technology, we aim to adapt our comprehensive suite of solutions to address the multifaceted challenges brought by regulatory requirements,” said Mr Lollieux. “As fund administrator and depositary bank, we have to support innovative investment products such as semi-liquid funds or ELTIFs, and can call on our considerable expertise in a wide range of asset classes to deliver the most suitable operating model.”
A constant improvement in accessing data aims to simplify reporting and help asset managers in the oversight of delegated activities. It is only through the deployment and the use of IT, such as APIs or web platforms, that investors, asset managers, fund boards, and regulators can receive the information they need, in the expected time frame and in a cost-effective fashion.
Making smart use of innovation
We receive a variety of requests from our asset manager clients, and AI tools are helping us deal with these questions while giving our staff more time to add value in other areas.
Mr Lollieux is particularly interested in the opportunities offered by new technologies such as advanced machine learning or distributed ledger technology. As the third-largest custodian bank in Luxembourg (with €530bn of assets under custody in Luxembourg, and being amongst the largest custodians globally), BNP Paribas’ Securities Services can train advanced machine learning tools to interact efficiently with the bank’s underlying systems. They also leverage a set of APIs to ensure reliability and scalability.
“We receive a variety of requests from our asset manager clients, and AI tools are helping us deal with these questions while giving our staff more time to add value in other areas,” Mr Lollieux said. He is also curious about potential industry use cases that distributed ledger technology could offer to the distribution of investment fund products, with BNP Paribas continuing to experiment with this technology’s potential.
“By optimising operational processes, leveraging automation, and technology to enhance efficiency, we aim to support asset managers in developing their investment fund range while navigating the complexity of regulatory compliance,” said Mr Lollieux. “Because the asset management industry is part of a solution to key challenges faced by our society, we must deliver reliable solutions to underpin an innovative and safe investment environment.”