BNP Paribas Investment Partners' two-year growth plan has until the end of next year to meet targets. Asia and emerging markets, headed by Ligia Torres, is tasked with providing the largest contribution, finds Nick Fitzpatrick.
In their quest to grow emerging market client lists, many global fund managers are only partially right to focus uppermost on Asia – or so says Ligia Torres at BNP Paribas Investment Partners (BNPP IP). In her eyes, Latin America is the bigger harvest.
“The rates of growth in Latin America are higher than in Asia Pacific. We’ve done the analysis,” Mexican-born Torres says.
“Everyone else is looking at Asia but the demographic is making Latin America something to aim at.”
Torres is head of Asia-Pacific and emerging markets, a post she has held since July 2013. She says that Colombia, Brazil and Mexico are 80% of the opportunity in Latin America and she reveals that BNPP IP is registering a company in Mexico as part of its expansion.
Identifying growth opportunities is a pressing issue for Torres and all other departments at BNPP IP. Last year, its French parent bank announced a 2014-2016 growth plan that included growing assets under management in the asset management business by €40 billion and revenues by 10%.
Torres’s business line is expected to be the largest contributor, at 36%.
Assets under management for the asset management division as a whole, have started to move upwards. They fell from €404 billion in the first quarter (Q1) in 2013 to €375 billion at Q2 2013. At Q2 this year, they had risen again to €380 billion.
BNPP IP – which forms part of the bank’s broader asset managment segment – saw its assets rise from €478 billion at June 30 last year, to €497 billion at end-June this year.
The Asia-Pacific and emerging market unit that Torres heads has €46 billion of assets under management, split 72% institutional and 28% retail.
Torres, formerly BNP Paribas’ UK regional chief executive officer for wealth management, is confident about achieving her unit’s contribution. The confidence derives from the quantity of investment offices she has in Asia and emerging markets, and on a product offering that consists not only of Luxembourg funds, but also funds domiciled in markets the asset manager sells to.
According to BNPP IP internal research in April, it has the largest investment-manager presence in emerging and Asia Pacific countries out of a peer group of ten. Pending Mexican regulatory approval, the firm has investment managers in 15 locations while the other nine firms have managers in an average of nine countries. Torres cites the UK’s Schroders and Franklin Templeton from the US as some of its key rivals.
Schroders struck a coup in 2013 when it won the first international investment mandate from a Mexican pension fund, Afore Banamex, worth $200 million (€150 million). Mexican pension funds are opening up to international investment and are part of the reason Latin America is a key growth target.
The emphasis on creating a strong local presence with managers and funds (BNPP IP has an average of 25 funds in each market, says Torres) paid dividends in the emerging market rout over the past year or more when global investors retreated from the emerging economies.
“When there is a crisis in emerging markets, global investors leave, local ones do not. In Q1 the industry had $34 billion of outflows, but we had inflows.”
This shows why some other global managers are at a disadvantage, she says, by selling emerging markets to global investors and less into local client bases. In Chile, for example, BNPP IP has a joint venture with Banco de Chile, selling funds under its own name.
Reasons for the retreat by global investors from emerging markets may have been, variously, China growth concerns, and the presumed recovery of developed-world markets.
But it is easy to find investment managers that have not given up on emerging markets and continue to argue the long-term outlook is supported by sound economics. Yet political uncertainty has also clouded the landscape with key elections this year, including in India and Indonesia. Brazil will have a general election in October.
Torres believes it is political risk more than economic that influences the emerging market premium – but she also thinks this can be downplayed in some emerging countries because of political continuity that has survived past elections.
For example, there was wide scepticism among international investors, says Torres, about Brazil’s economic evolution after the Asian crisis.
She says, though, that after meeting with the central bank and local businesses, BNP Paribas IP formed a “completely different picture” and became highly positive about Brazil. Even when Workers’ Party leader, Luiz Inácio Lula da Silva, was elected president in 2002 – which caused critics to coin the term “Lula Risk” – Brazil continued to recover and Lula continued to implement positive change.
“In the end, there was continuity and Brazil is now in a nice cycle.”
Latin America is the second largest slice of the unit’s business, at 23%, compared to 71% for Asia-Pacific.
Emerging market risks are a concern not just for investors but also for depositary banks – the external firms that handle record keeping for funds. In Europe, regulations making depositaries liable for compensating investors for lost assets has threatened to increase the depositary fee that fund managers pay as the banks seek an appropriate reward, particularly for riskier strategies – and that includes emerging markets where risks may be inherent in ownership rules and market infrastructure.
Does Torres see this a problem for emering market managers? “Prices are going to increase – we hear three to ten basis points mentioned – but asset managers are pushing back.
“Some depositaries were doing this for less than one basis point, so going from one to ten will have an impact,” she says.
BNPP IP’s depositary is BNP Paribas’ own securities services division, BNP Paribas Securities Services (BNPPSS).
To get a hold of the new liability risk, BNPPSS has been increasing its own depositary footprint in recent years rather than relying on external providers.
“With time, we will see exactly what the right price is. The price is based on credit risk, and tools and models are needed to measure it.”
In a world where every basis point counts for asset managers, Torres will have to hope the industry’s depositary costs do not drag on emerging market asset gathering – especially as the bank parent company expects such a large contribution.
©2014 funds europe