On the road

Etienne_DeniauFunds Europe talks to SGSS about the asset servicer’s Long View survey on the major issues facing the industry and the upcoming roadshows to publicise and debate the results.

At the end of 2017, Societe Generale Securities Services (SGSS) conducted a series of interviews with top executives at European asset managers, asset owners and private equity and real estate fund managers on the major issues facing the industry from the global economic environment to artificial intelligence.

The exercise included 100 c-level executives from 66 companies in eight European countries – the UK, France, Germany, Netherlands, Ireland, Luxembourg, Italy and Denmark. All 100 participants were interviewed in person by SGSS executives and asked questions on four major issues – the global economic environment; developing new investment strategy, adjusting operational strategy for a new world; adopting new technology.

According to Etienne Deniau, head of strategic marketing at SGSS (pictured), the questions were deliberately open-ended and focused on broad subjects in order to gather a much wider range of material. Deniau also highlights the benefit of conducting face to face interviews as opposed to sending out a mass-scale questionnaire or online polling.

“The analysis is much richer as a result,” he says. “We are able to listen to their ideas on strategy, their operational set-up and their views on the technology and trends of the future. “The responses we received were much broader and more expansive than you would normally get from an online questionnaire.

“They shared their vision of the industry and the strategic challenges and we were able to identify major current and upcoming trends and any positive or negative sentiment towards them as seen by those experiencing and shaping them.”

These responses will be publicised, analysed and debated at a series of roadshows held by SGSS with a panel of investment experts throughout the summer. The roadshows will take place in Paris, Luxembourg, Zurich, Frankfurt, Milan and London between June and July.

While most of the survey’s findings are under wraps until then, Deniau is able to give some insight on two of the most surprising findings from the interviews. Firstly, environmental, social and governance (ESG) investment is now considered a mainstream strategy among the majority of respondents and no longer seen as a specialist investment class.

There are, however, different levels of dedication to the ESG cause across the industry, says Deniau. Some managers and investors are committed; others are more opportunistic, while some consider themselves beginners and a few are reluctant participants. The common link is that all of them consider ESG to be a practically mandatory area of investment that can no longer be ignored.

The interest in ESG investment is especially acute among private equity and real estate fund managers and investors. This is in part due to the fact that these investments are in the so-called real economy and therefore investment decisions carry far greater influence in terms of environmental impact and responsibility, says Deniau.

There are also more opportunistic motivations; for example, roughly 20-25% of all carbon dioxide production comes from buildings so there is a much greater need for emissions-friendly buildings and a much greater long term return for investment into this area.

The second surprising finding relates to Brexit. “This was an issue that came up in many interviews and most of the respondents (roughly 66%) are completely neutral about the issue and the likely impact,” says Deniau. “For 25% of respondents, Brexit is seen as an opportunity and for the remaining 8-10% there will be a need to adapt business models. This surprised us.”

Once more the impact of Brexit was seen as more acute in the PE/RE markets. While the majority believe London will continue to be a major financial centre and source of investment, they also foresee a greater interest in private equity and real estate in continental Europe. “There will be more opportunity in continental Europe but the price of any private equity or real estate investment will likely go up.”

For those that imagine some kind of change to their business model as a result of Brexit, much of this impact will only arrive in five years’ time rather than in the immediate future.

The Long View survey forms part of a wider SGSS initiative named IM 2025, designed to look into the future of the industry. Consequently there is a big focus on technology – what do firms currently use and what are they looking to develop in the future.

“We found that there were different attitudes – some that have committed to new technology and already have the likes of robot process automation, artificial intelligence or robo-advisors in full production; and then others that are not as advanced in their technology development,” says Deniau.

“We believe the industry is on the eve of a major transformation. We have seen the impact of many years of regulation on operations and now we are going to see the impact of new technology as everyone looks to process and operate at an increasingly faster rate.”

For an asset servicer such as SGSS, the benefit of all this research is that they can understand where their customers [the asset managers and investors] are in terms of the latest trends and new technology, says Deniau. “Consequently SGSS will get a better idea of how fast and in what areas it needs to adapt to these market needs.”

For example, on the operations side it is becoming clear that due to ongoing regulatory requirements, firms that previously kept all of their operations in-house will no longer be able to continue with such a strategy and will have to engage in some form of operational outsourcing.

“The roadshow is about presenting all of this information and then discussing it all with a panel of asset managers,” says Deniau. “We will then be able to present a view of the industry for the next five to ten years. For any industry participant and for those that took part in the survey, the results will give people a chance to benchmark themselves against their peers in terms of the new trends and new technology.”

©2018 funds europe