The end of June saw BNP Paribas Asset Management (BNPP AM) announcing it had received regulatory approval from the Central Bank of Ireland for BNP Paribas Easy ICAV and had launched its first sub-fund, BNP Paribas Easy S&P 500 ESG UCITS ETF.
The first product for the asset manager out of Ireland marks a new stage in their development. Lorraine Sereyjol-Garros, Global Head of Development for BNPP AM’s ETF & Index solutions explains that 90 per cent of their assets are European: “But we want to develop the distribution to Latin America and to Asia where UCITS ETFs are useful. In the future we will be using Ireland more and more on the fixed income and on the equity side.”
Sereyjol-Garros has a background in quantitative strategies and structured products. While at Societe Generale, she worked with Isabelle Bourcier who moved to BNPP AM and subsequently brought her in to the asset manager. In a previous incarnation she had worked at Barclays Investment Bank, launching an ETF with Shiller and Ossiam, the Ossiam ETF Shiller Barclays Cape US Sector Value UCITS ETF (ETF).
“I had already been selling some ETFs at Societe Generale because some of my clients were already investing in ETFs,” she says, before finally committing to ETFs in 2016, convinced that the low cost route was the only way forward.
She says that her approach to spreading the word is to first target the asset manager and private banks because they are the much faster movers compared with institutional investors where you need at least one and a half years, if not four.
Whatever she is doing, it appears to be working. When she joined BNPP AM in 2016, assets were at EUR13 billion in ETFs and index funds, which was, as she phrases it, ‘a bit weak’ for institutional investors if they wanted to do a big switch but now assets stand at EUR47 billion which can accommodate their needs.
When she arrived in the ETF world at BNPP AM, she was surprised by its complexity. “I found the ETF world very challenging,” she says. “As I came from the complex, structured product world, I thought it would be easy, but ETFs are not easy at all. Everything is in the details, and you can see this also with the clients who are not aware of the specifics of ETFs, at least in continental Europe.”
She says that an ETF sales person needs to know all the methodology. “They need to do a deep dive on the index methodology and know if the replication is physical or synthetic, or if it’s optimised – it takes a bit of time to get familiar with.”
Sereyjol-Garros says: “We are proud of the assets under management and also our resilience as demonstrated when Covid happened in 2020. We were very nervous, not knowing what will happen on the markets and particularly with fixed income but our market and our brand did well, and also through the time and our market and brand did well and also through the Ukraine issue.”
BNPP AM has also been including ESG in all of its products since 2017. “All our products since 2017 are ESG – it is our value added,” she says. “We still have non-ESG ETFs which were launched before 2017, and ESG ETFs represent around 90 per cent of our range.”
The plan is still to increase the range with a second ETF strategy plan for 2022-25 aiming to raise the assets under management and launch 30 new ETFs by 2025.
The new launches will be in global equity thematic strategies and fixed income.
“More and more people are buying fixed income ETFs since 2021,” she says. “There were some fears about fixed income because of underlying liquidity issues but the market crisis showed that ETFs behaved well.”
Sereyjol-Garros notes that her clients find ETFs useful because they enable easy exposure to the markets, with liquidity and a cheap price. “I see that private banks and wealth management firms, even retail firms, like to buy fixed income ETFs. With one trade you have a good diversification level as there are more than 4,000 underlyings with Euro Aggregate Corporate and you can buy that for a reasonable cost. As the market is volatile and nervous, clients prefer to be well diversified.”
She says that there has recently been a lot of interest from institutions for investing in high yield, which is a new phenomenon and driven because of diversification and liquidity.
BNPP AM’s products are available worldwide, but their main client base is in Europe. “While 90 per cent of our assets are European, we want to develop the distribution to Latin America and Asia where UCITS products are useful,” she says.
Hence the opening in Ireland. “We have seen strong development of what we call ‘piloted mandates’ in particular in Germany,” she says, saying that three years ago retail represented 10 per cent of Germany’s AUM in ETFs and now it is more than 40 per cent. “We work with some local players that use our ETFs in savings plans where retail investors put maybe EUR100 a month and are automatically invested in ETFs. This reflects more equity ETFs than fixed income as they are long term savings, with a ratio of about 70 to 30.”
BNPP AM has been selected by Trade Republic Bank, a German headquartered online broker which is planning to develop its ETF use because of strong demand from their investors, who are particularly looking for ESG and thematic ETFs.
The MiFID regulations have given private banks a bigger incentive to give advice when selling to retail clients encouraging the use of digital or thematic ETFs for tactical reasons because of their intraday trading facility.
“We see a lot of our clients in France doing more and more with ETFs,” she says. “It’s changing slowly because of the change of regulation which is evolving, driven by pressure from end users who are pushing to have more ETFs.”