Tradetech 2024 kicked off proceedings with a buy side CEO fire-side chat with Sandro Pierri, CEO, BNP Paribas Asset Management, and moderated by Tanguy van de Werve, director general, EFAMA, in which Pierri discussed the biggest threats and opportunities facing the buy side in 2024, and beyond.
‘The industry is at an inflection point’
Pierri discussed the myriad macro transitions the world is currently undergoing – in energy, sustainability, technology, and demographics – and their impact on inflation, growth, and interest rates.
The era of cheap labour and low interest rates has come to an end, and there is a need for a new order. Pierri expects these demographic changes will impact industry growth, with higher inflation and lower productivity. “The industry is at an inflection point,” Pierri noted. This disruption is good for business, Pierri added. “This is the best environment for the asset manager.”
The US innovates, Asia replicates, and Europe regulates
Reeling off a long list of European financial regulation, van de Werve asked whether Europe can regulate its way to sustainability. Conceding that there may already be too much regulation – “I think we are probably going too far” – Pierri said that over the next five years there are two areas that do need an active regulatory approach; sustainability regulation and the establishment of a capital markets union (CMU), particularly as it relates to the competitiveness of European firms and their access to financing.
More broadly, Pierri emphasised the need for stronger cooperation and a proper regulatory framework to support the transition to sustainable finance. Without it, the lack of coordination among regulations could lead to unintended consequences, Pierri said.
Stronger cooperation between the private and public spheres was also essential to manage the green transition, Pierri added, citing research that showed a 1% reduction in emissions from the highest emitters could have a bigger impact than investing in cleantech alone.
Greenwashing – are we doing a good job?
While the Sustainable Finance Disclosure Regulation (SFDR) is a good first step and greenwashing is currently more of a reputational risk, “we definitely need to do more,” Pierri suggested.
“It’s not the sexiest argument but the reality is that where I think we will have an impact is on the transformation of internal processes.” Pierri also noted that greenwashing is often borne out of a lack of data coming out of companies and that although. More broadly, “asset managers need to do more to explain the impact of sustainable finance”, Pierri said.
Challenges
Looking ahead, Pierri considered the key strategic priorities for asset managers in Europe, including the importance of private assets and private debt, growth potential in Asia, and the need for a regulatory and political framework to incentivise savings going to European products.
Pierri said European companies face structural challenges, including fragmentation on exchanges and lack of homogeneous regulatory frameworks, which hinder their competitiveness. Structurally, EU firms tend to be smaller, Pierri said, which can also hinder their competitiveness. On the supply side, Pierri asked how can Europe create the right environment, and make it easier for capital markets to access financing.
“The fact is we’re taking savings from the EU to basically finance US companies that might end up taking over European companies,” Pierri noted. Therefore, the EU needs to incentivise savings going to EU companies.
Opportunities
Challenges aside, Pierri pointed to investment opportunities in private assets, debt, and exchange traded funds (ETFs) in Europe and Asia. These are key growth areas for asset managers in Europe, Pierri said. Given the global tussle between the US and China, and the wider Asia Pacific (APAC) region, Pierri said European asset managers are well positioned to capitalise on opportunities in APAC.
Investment strategies in a low-interest-rate environment must focus on active management as well as passive investing, Pierri suggested. “With the rise of ETFs, it’s difficult to define a very clear line between active and passive.”
Overall key strategic priorities for the firm can be grouped into two strands, Pierri said: Getting the right people and culture, and marrying that with the latest and appropriate technologies.
Last, but certainly not least, Pierri discussed this year’s industry buzzword: artificial intelligence (AI), relating how BNP Paribas’ Asset Management head honchos have taken the time to sit down with younger, more in-tune, generations to really get to grips with the nascent technology. “We want people to give us ideas on what to do with AI. So far, we’ve generated about 100 use cases.”
Currently, the firm is looking to utilise AI for efficiency and automation, using it to deliver fund commentaries and investment research. Secondly, AI will ultimately allow for mass customisation, Pierri believes. The technology is also being leveraged to digitally change the client journey, using a combination of algorithmic portfolio management and the usual client management strategies. “I think in this regard, we’re reasonably advanced,” Pierri said.
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