During the L3A Summer E-Conference, Robert van Kerkhoff, Managing Director, BNP Paribas Securities Services Luxembourg, Niccolo Polli, CEO, HSBC Luxembourg, and Eduardo Gramuglia, Country Head at State Street Bank International’s Luxembourg branch discussed underlying trends in the development of financial technology, retention of talent and the rising influence of the environment, social responsibility and corporate governance (ESG). Here is a summary of their discussion.

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What are the prospects for alternative investments?

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With a current ratio of around 17% of investments in alternative categories, Robert van Kerkhoff thinks the proportion will rise to 25% in a couple of years. Niccolo Polli said that with more alternative than traditional launches, HSBC’s ratio will rise from a quarter to 30% or 35% within three years while Eduardo Gramuglia delared that with a ratio of around 10% or 15% the alternative share is growing. Clients were undeterred by the Covid-19 crisis: progress of numerous alternative projects have been neither suspended nor slowed. While funds are still flowing into traditional investments the manufacture of new alternative products is already outstripping the creation of UCITS. Alternatives are becoming mainstream as traditional investors ask for new products. “Products are starting to be hybrid, taking features from both worlds. However, while funds are evolving as people come up with new ideas it is going to be different from the previous approach, that’s why they are called ‘alternative’ investments” added Robert van Kerkhoff.

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“Products are starting to be hybrid, taking features from both worlds. However, while funds are evolving as people come up with new ideas it is going to be different from the previous approach, that’s why they are called ‘alternative’ investments.”

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What actions are required to sustain margins?

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While the margin on alternative investments is higher than on classical business, this spread is narrowing with the growing availability of alternatives. To preserve margins, providers need greater efficiency offering additional services and improved technology. For example, HSBC is present in multiple jurisdictions, so need to ensure that when clients connect to them, they offer a single technology platform to create an homogenous client experience. This has prompted a change in HSBC’s technology strategy. They used to think that no outside technology was good enough, so they built their own. But recognising this required a lot of investment, they now take platforms and systems already used by their customers and applying APIs to make client connectivity as seamless as possible. Technology will continue to be critical and will have to remain at the forefront of any expansion or growth ambitions. There is the expectation of closer working partnerships with financial technology companies are the way things are evolving. An advantage is that small, financial technology companies are more nimble and quicker able to respond to changes. But scale and global reach in mandates and distribution that clients seek lies with the bigger players.

 

What trends do you anticipate will change your market?

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Investment has embedded the principles of “risk and reward.” But today the new concept has to be “reward and impact” as issues relating to the environment, social and corporate governance are highlighted by investors. ESG coming into the alternative space will require more, standardised and consistent data. To prove your product is ESG compliant you will have to provide a whole set of data, not only to the investor but also to the regulators to continue to justify the ESG label. Activities like fintech and boutique investment houses are already being outsourced. Covid increased remote working creating challenges attracting and retaining talent. If people can work from home, why not anywhere in the world and why not use talent from areas outside borders? This can be particularly attractive if there are waves of the virus impacting different regions of the world at any one time.However, this raises issues not only about security, regulation and licencing but also about the mental health and wellbeing of people working from home.

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