BNP Paribas Securities Services is pushing ahead in its campaign to bring its services offering to the ETF industry in the US and Ireland.
Jeffrey Baccash (pictured), Global Head of ETF Solutions, BNP Paribas Securities Services, says: “Our objective is to open in the US and Ireland. We are in the analysis phase to see what investments will need to be made to bring our services to the American and Irish marketplace.”
Baccash runs the global ETF solutions group for BNP Paribas. The bank has USD11 trillion under custody, which makes it the fifth largest custodian in the world, with approximately USD3 trillion under administration for over 10,000 funds. “Our business focuses on custody, administration and providing middle to back office services to clients.”
The bank has 11,000 employees throughout the world, and the US, where Baccash is based, is a key area of growth for the business. “Our mission is to be the asset servicing partner of choice for the asset management companies of the world,” he says. “We want to accompany their growth and that leads directly into our strategy around ETFs.”
The asset managers segment is one of four client segments at the bank, with financial intermediaries, other banks and brokers; asset owners such as pension and insurance funds and alternative investors which includes private equity, real estate and hedge funds.
“Asset managers are where we see opportunity right now,” Baccash says. “We have had a long journey building out our offering to asset managers here in the US and ETFs are becoming a more and more important part of that journey.”
BNP Paribas is the newest global custodian to build a brick and mortar location in the US, based on its launch of global and local custody in 2012, followed by the acquisition of Credit Suisse’s alternative fund administration business in 2015. In addition, 2017 saw BNP Paribas acquire the middle and back operations of Janus Henderson Investors, lifting out about 130 people from that firm who have become the foundation of the ’40 Act fund servicing operation in the US.
“Before that, we had USD3 trillion in fund servicing assets around the world, but not in the US, which is the opposite of most other global banks.”
ETF servicing was a natural evolution from there, Baccash says.
“Asset managers need global solutions. We want to be that provider with full asset class coverage and ETFs are an important sub segment of a fund’s distribution strategy.”
The bank is investing heavily in technology to bring innovation to the ETF ecosystem, he says.
“We are working on that here from New York at a global level. We are not isolated by any means just because I have a New Jersey accent,” Baccash says. “My role is truly global and we are thinking about ETFs globally.”
The bank already services around 200 ETFs on a global scale, and has done so for over 10 years, working from five fund domiciles: France, Luxembourg, Germany, New Zealand and Brazil.
“There are five geographies there,” he says. “But the two largest for ETFs are the US and Ireland, which give or take, control about 90 per cent of the business and we are not there yet. It’s part of our investment strategy and we are building out our technology and teams to be present in 2020 and beyond.”
Baccash is working on integrating the planned Irish offering with the rest of the European continental fund servicing strategy.
He has personally been with BNP Paribas for 14 years, always on the buy side of the business, either in servicing or part of that business, and has focused on the strategy for ETFs for four years.
“We have built quite a nice team in New York,” he says. “We have onboarded three core individuals with over 35 years of ETF experience among them. It’s a 23-year-old industry and they come from all three perspectives: an asset manager or issuer; the sell side as an authorised participant and a trader and the bank servicing side, so we are really getting a sense of everything we need to be successful.”
Baccash believes that three things are driving the growth of the ETF industry at the moment and the first is cost. “ETFs are cost-effective,” he says. “Every article in the paper, every conference speaker says that low cost is the headline.”
He adds: “Just because something is cost-effective doesn’t mean it works but asset managers have managed to create indexes and passive investments that are easily accessible for both institutional investors and individuals.
Baccash believes that ETFs translate well into recent cultural changes that have impacted consumer habits over the decade since ETFs have taken off.
“How we work, how we communicate, how we consume has changed drastically and because ETFs have that exchange-traded component it makes them more integrated into our consumer culture for today. They are more equipped for being bought and sold intra-day than mutual funds and they give investors instantaneous liquidity. It puts them in a good position today and places them to be even more prominent tomorrow.
He also comments on the M&A activity that has been seen in the ETF industry over recent years. “Everyone faces fee compression – it’s a consistent theme so how do you achieve scale and have cost savings going forward,” he says.
BNP Paribas is taking a digital approach to ETF servicing. “We feel that we can offer clients a consistent global experience as we are a truly global bank, particularly in our securities services franchise where offering a consistent experience is important.
“We like to say that we separate the E and the T from the F,” he says, meaning the exchange traded from the fund.
“We believe that fund structures are going to be local – a traditional fund is different from a UCITS which is different again from a 40 Act – they all have different regulatory requirements.
“From our research we have identified common features of ETFs throughout the world and know what information is most important to deliver back to the ETF issuer. Many of the elements we are focusing on relate to the performance and liquidity of the funds “Being a bank servicing partner, we can provide a consistent user experience around the world. We have common sets of data and our digital approach enables us to deliver that information back to the client in a secure way.”
BNP Paribas Securities Services sits within the larger corporate and institutional bank so has a capability to provide more than just traditional services, he says.
“We are studying how we can package those solutions which are most valuable to an ETF and be the premier banking partner for them.”