Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: You're listening to the Markets and Security Services Outlook, a podcast miniseries exploring the critical topics that will shape our industry in the next decade, including sustainability, digitalisation and emerging markets.
Speaker: Find out what's driving the global outlook for institutional investors and where the opportunities and challenges lie.
Speaker: Thank you for joining us.
Speaker: I'm delighted to introduce our first expert, Olivia Vindon.
Speaker: Olivia has over 15 years experience consulting in the financial services sector, starting her career at Accenture and then for over 10 years at Alpha, where she leads their in-tech and innovation practice.
Speaker: She's passionate about emerging technology and its impact on asset and wealth manager operating models.
Speaker: Paul Beiber.
Speaker: Paul has over 30 years experience of working in and working for by-site operations.
Speaker: where he's been instrumental in designing the global operating models for HSBC, EMP, and FFTW.
Speaker: He's currently senior product manager, a middle office, and outsourcing at HSBC.
Speaker: Finally, my name is Dale Greave, and I have over 30 years' experience in the security services industry.
Speaker: At HSBC, I currently head up the asset owner team in Europe for client management and business development, and I've spent 15 years specialising in outsourcing and structuring partnerships for asset management and insurance companies,
Speaker: our operations and transforming the growth of productivity.
Speaker: I will be your moderator for today.
Speaker: So now that introductions are complete, let's kick off, let's start with our first question, which I'm handing over to Liv.
Speaker: Do you think asset managers are being braver?
Speaker: I'm not sure braver is quite the right word.
Speaker: They're in this sort of perfect storm where client demands are really changing.
Speaker: They're under huge margin pressure.
Speaker: and the technology landscape is evolving under their feet.
Speaker: And so I think what we're seeing is not so much braver decisions, but certainly bigger decisions.
Speaker: So it used to be the case that 10 years ago, someone might come to Alpha and say, can you help us select and implement a risk system or a reporting system?
Speaker: And now they take these decisions in a much more holistic way.
Speaker: So they're looking right across the enterprise, front to back and out to the sides of
Speaker: How can we make sure that our operating model really works across the full enterprise and can power some of those future state technologies like we'll come on to talk about data science and others?
Speaker: So I think they're making bigger decisions and they're certainly under more pressure.
Speaker: But I'm not sure about Braver because we still see them taking quite traditional decisions.
Speaker: They like to select systems which are tried and true or vendors who are tried and true.
Speaker: and have a lot of market scale.
Speaker: So new solutions in the market tend to struggle unless they've got backing of other parties behind them.
Speaker: Thank you, Liv.
Speaker: So not braver, but maybe grander, or we'll use that word instead from now on.
Speaker: Paul, interested to hear from you in terms of drivers.
Speaker: So what do you see are the main drivers that are pushing these asset managers into making these decisions?
Speaker: Thanks for the question.
Speaker: I think it's an interesting time because a lot of the drivers come from the investor demands.
Speaker: We've gone through the phase where the millennials have been replaced by the next generation and the generations that are coming want to have a far greater say in how their savings are invested.
Speaker: The demand is changing.
Speaker: The investor is able to access greater sources of information than ever before.
Speaker: That curiosity is making the investor more sophisticated.
Speaker: As a more sophisticated investor, they want to take a bigger role.
Speaker: They want to decide where their savings are invested.
Speaker: And these investors are seeking more diversity that the asset managers have to somehow be able to support.
Speaker: The asset managers are having to consider how to support greater personalization.
Speaker: Investors, they're not satisfied with simple ETF, which may give access to an entire index and may not meet their particular needs.
Speaker: Those investors want portfolios that may exclude companies who ESG's track record is not good.
Speaker: That doesn't come from an ETF.
Speaker: That personalization is creating the asset manager to have to think different.
Speaker: The problem with personalization is at least a greater cost.
Speaker: The greater cost is what's driving the asset manager to actually look at their operating models.
Speaker: and decide the question that you're really asking, do they rip it up completely or do they actually start enhancing it, changing it?
Speaker: It's that that is prompting the major thought processes and being able to actually offer the personalisation while we're keeping the cost of production at a low level.
Speaker: Thank you, Paul.
Speaker: So I guess when you're saying personalisation, driving those great costs.
Speaker: Lewis, in that context, what are you advising clients at the moment?
Speaker: I guess there are a few themes.
Speaker: I think probably most importantly is just the direction of technology.
Speaker: So where are we seeing technology go?
Speaker: And there are a few things coming out of the more Silicon Valley oriented tech firms that we're seeing.
Speaker: So obviously the move to cloud is absolutely paramount, I think, and not just putting applications in the cloud, but cloud native technologies, which are event driven, API enabled and cloud native really important.
Speaker: So I think a lot of the programs that we're working on at the moment are looking at that as a key component.
Speaker: The other thing is making them sort of hyper integrated.
Speaker: So I think where asset managers have struggled with their operating models, and we sort of describe this curve that people go through where as they grow scale, they grow their complexity.
Speaker: But if they continue to scale complexity with their AUM growth, then they'll end up in a quite tricky place.
Speaker: So they need to find some way of bringing that curve backwards and
Speaker: sort of standardizing across the operating model.
Speaker: And so we advise clients a lot on, for example, service levels to their clients and standardizing across those service levels and making sure that people are getting the efficiencies of scale.
Speaker: The other probably thing just to mention is I think we still see a lot of M&A activity, not necessarily merging of really big houses, but certainly bolt on acquisitions that
Speaker: that can really add to the operating model and help clients either enter a new market or a new asset class, or even gain a new capability, like particularly ESG as Paul alluded to.
Speaker: We've seen a lot of interest in M&A in that space.
Speaker: Right across the board, Alpha's advising, we do sort of front to back.
Speaker: And as I said, now much more interest in crossing the silos.
Speaker: So I think connecting the investments and operations silo with distribution and finance and into the wider enterprise.
Speaker: And firms are really trying to make those decisions quite, quite holistically, I would say now.
Speaker: So I think it goes back to some of the comments I made about that holistic approach as opposed to that component approach, I guess.
Speaker: So, Paul, just a very quick question to you then on the back of what Liv's just said.
Speaker: Are we seeing the same sort of demands from our clients in secured services?
Speaker: The demand, I think, has created a renaissance in middle office outsourcing, particularly in Europe and the UK.
Speaker: I think we've seen some large mandates coming to market that traditionally we've not expected them to arrive.
Speaker: Outsourcing has taken a great leap forward in Asia, particularly amongst the small to medium asset managers that occupy that space.
Speaker: We asked before about or we mentioned before about ripping up everything and starting again, but that's too disruptive to an asset manager.
Speaker: When you're looking at a front to back offering, which is the buzzword that everybody talks about, changing your RMS platform and your security services provider at the same time is high risk.
Speaker: I've been working recently with a large technology company that provides RMS platforms, order management platforms, and they advise their clients that they can do one or the other.
Speaker: service provider or RMS platform.
Speaker: And you really have to do your RMS platform before you do your service provider because a lot of the current RMS platforms require much more direct interaction with the service provider than before.
Speaker: Clients are asking us to reimagine how they want us to operate and how we are able to provide assistance.
Speaker: Outsourcing to a firm with an established model can reap benefits for the asset manager.
Speaker: And that's why there's been the renaissance.
Speaker: And certainly in these COVID times where COVID has highlighted a lot of the manual processes that asset managers may have.
Speaker: that they probably weren't concerned about or aware of when people were on site.
Speaker: But when these activities suddenly had to be done off site and from people working at home, it's created a fresh look at it.
Speaker: As an outsourcer, we need to provide cost effective, scalable solutions.
Speaker: That goes to Liv's point about standardization, scale and efficiency.
Speaker: And not only support the managers' current needs, but we also need to be looking forward to support their future needs.
Speaker: These needs include new markets, new asset classes.
Speaker: Certainly at HSBC, we're constantly investing in new technology and services.
Speaker: In terms like RPA, AI, API, some of these terms that Liv mentioned, the cloud, for example, we never mentioned these 10 years ago and now outsource services are delivered with these technologies in mind.
Speaker: And these technologies enable us how to change and how we operate, making these services more accessible to clients.
Speaker: Thank you, Paul.
Speaker: Yeah, it's interesting to say about the OMS and the service provider change at one time, that would be a bit of a challenge for most, I would have thought.
Speaker: And I have seen people looking at that.
Speaker: But I think coming back to the same decision you've mentioned there,
Speaker: And I'm very interested to hear what you're saying about actually a manual process highlighted in this COVID environment where people are working from home.
Speaker: I might just add on to what Paul said there that I think there has been a bit of a change as well, maybe off the back of COVID and remote working, as Paul says, or it may just be the right time with the margin pressures.
Speaker: But one thing that we're certainly seeing is that asset managers above, say, that marker of
Speaker: 500 billion are considering outsourcing their middle office now in a way that maybe they previously hadn't and also aladdin clients or or clients of a sort of integrated front office and eyeball tools are also considering outsourcing the middle office and and that is i think a shift from what we we saw historically and i think will be really interesting for the middle office market
Speaker: What do you think is the large ones that are actually considering it more now, do you think?
Speaker: I think it's back to those trends that we talked about.
Speaker: I think it is asset managers looking holistically right across their operating model of wanting a solution that is cost effective and where the cost scales with the AUM.
Speaker: So I think it's just meaning that where asset managers traditionally really focused on their own value adds or having their own global models,
Speaker: Actually, they can do that with an asset servicer now and the middle office services are becoming better and better and more technologically underpinned.
Speaker: So it makes those decisions easier.
Speaker: How do you see technology advancements changing how outsourced services have been delivered?
Speaker: For example, do you see middle office services moving to the cloud?
Speaker: There's moving to the cloud and there's moving to the cloud.
Speaker: So that's probably the first thing to say.
Speaker: I think you can have something in a cloud server versus having that more cloud native approach where it's more event driven.
Speaker: And we've seen some fintechs move into the space with these idea of transaction based event driven eyeballs.
Speaker: I think the more traditional asset services are all looking at that as well, but they're still back to that problem of legacy technology.
Speaker: They've still got some legacy technology, which is more batch-based overnight.
Speaker: Merging those two models is complicated.
Speaker: I think we see this sort of trend where application by application, things are moving to the cloud.
Speaker: So CRM would
Speaker: Salesforce in particular has been long as a cloud native application.
Speaker: Then we saw a lot of the performance measurement attribution tools being more cloud native.
Speaker: And I think iBOR is coming.
Speaker: You see some of the big iBOR tools and even some of the ABO tools have got cloud programs themselves.
Speaker: And then just in general, even if the tool happens to be on-prem,
Speaker: that asset services are moving data into cloud applications.
Speaker: And in particular, I'd just flag the success of Snowflake, which we've seen so many announcements on the back of their technology, where people, even if it's an on-prem system, they want that data in the cloud because it gives them the advantage of being able to connect it into their operating model in these new ways.
Speaker: And that's really what we're seeing the demand for, I think.
Speaker: Thank you, Liam.
Speaker: Paul, is there anything else that you want to add to this point about the cloud?
Speaker: Do you have any thoughts?
Speaker: I agree with Livs.
Speaker: The cloud is going to be an enabler to us to deliver the services and certainly will enable us to deliver on our strategy around how we want to orientate our services around the client's front office and bring us closer together.
Speaker: And the cloud will help facilitate that.
Speaker: If applications can be shared in the cloud and both us and our clients have access to them, we're in a much better position to eliminate a lot of complexity that we have in the operating models at the moment.
Speaker: And those shared architectures, I think, are so exciting because
Speaker: I think asset managers have always been quite conservative about the data that they give to their asset services because they think, well, if I give them everything, transactions up, and then I want to move, how hard is that going to be?
Speaker: Whereas now, if you can operate in these shared environments, that gives a bit of flexibility over who can do the services, who provides the data, and who accesses the data.
Speaker: And I think that's really exciting for future state models.
Speaker: Anybody wants to take a punt on when that might happen, when we start having the shared eyeball in the cloud, for example.
Speaker: The trend has started to happen now.
Speaker: There are products that are out there at the moment that are operated in a cloud in a shared environment.
Speaker: It
Speaker: It might not be a cloud-based tool, but the Aladdin operating model for middle office is a great example of the asset manager and the outsource provider sharing a single platform for the maintenance of a persistent eyeball.
Speaker: That exists now.
Speaker: It's something that we are building an operating model around to support clients that will come to us, as Olivia said.
Speaker: Aladdin users that historically hadn't looked to outsource now have an opportunity because we're able to support them in such a way where we're sharing environments.
Speaker: Thank you.
Speaker: How do you see outsourced service providers playing a role in aligning data, driving out that complexity and making processes more efficient?
Speaker: I think I've mentioned on some of this before, our key is to, like I say, reorientate our services around our front office.
Speaker: We want to do that because at the moment there is a lot of air gaps between systems and a lot of complexity in how data is moved around those operating models.
Speaker: Each firm maintains their own book of records and we hear terms like IBOR, ABOR and TBOR.
Speaker: And much of what we do is passing data between those books of records and which are independently maintained, independently require separate sources of static data and then reconciled.
Speaker: That is what a lot of what we do, a lot of what our costs are.
Speaker: We've decided our strategy is to focus on eliminating the need for the multiple book of records.
Speaker: How many book of records do we really need and can we create a model where a single book of record can support the full investment lifecycle?
Speaker: What that's prompted us to do is completely reimagine how we do things today and look at how we actually get to that single book of record.
Speaker: That's where we have to start thinking about how we align data.
Speaker: how we line data across front, middle and back office operations rather than have separate sources of data in them as they do at the moment.
Speaker: If we can line data, we can then start either leveraging the power of the book of record in the order management system or we can work to a shared ledger for book of records that everybody uses to manage their process.
Speaker: A lot of the complexity we have is because the data historically has been misaligned.
Speaker: The reference data is different.
Speaker: and a custody data and I board data, use different reference data.
Speaker: So by lining that data and bringing it together, we can actually eliminate breaks and eliminate exceptions before they occur.
Speaker: And that allows us to give more efficient and trusted services.
Speaker: The data that comes as a result, also the outputs that come as a result of that reference data means that the outputs are more trusted.
Speaker: And that's why we can share them.
Speaker: That's why we can start using the front office data within the back office and the middle office.
Speaker: where in the past we have historically had separate representations of that.
Speaker: Platforms like Aladdin, or even some of the more traditional platforms that use an eyeball light, the key to them is getting the data aligned.
Speaker: If we do that, as I say, we can start leveraging that.
Speaker: Liv, I think we talked briefly about fintechs earlier, and we hear about them pretty much every day, new fintechs appearing.
Speaker: What are you seeing from fintechs?
Speaker: Yeah, well, I think the first thing to say is that there are a lot of fintechs in this space.
Speaker: And I think what they struggle with, right back to my very first point about whether or not asset managers are brave or not, is
Speaker: really changing some core part of an asset manager operating model because where we see fintechs being selected, they're being selected for some kind of very specific functionality on the edge of the model.
Speaker: The types of fintechs which could transform the things we're talking about, maybe a core eyeball, it's much, much harder for them to play in that space, especially if they're new because asset managers are naturally quite conservative.
Speaker: Although it's been five years since we had the FinTech launch, the FinTech practice at Alpha.
Speaker: And I think we're just starting to see maybe some of those more eyeball oriented FinTechs beginning to get live clients in the eyeball space.
Speaker: So that's exciting.
Speaker: The other thing just to say about FinTechs is I think that there's some really exciting operating models you can do by plugging them all together.
Speaker: And because back to that point about cloud nativeism, and because they tend to be cloud native, they're much easier to connect.
Speaker: So we're seeing these integration speeds, which are really, really quick and
Speaker: And many of them have their own software development kits or open APIs that you can actually just go on and have a bit of a play with.
Speaker: So that's exciting as well to see how you can add things together to build these new operating models.
Speaker: So yeah, a few things there.
Speaker: I think the other thing just to note is that when people think about this space, I think they think of an IBOR.
Speaker: But actually in a middle office operating model, you've got your TMNS systems, you've got your matching systems, you've got maybe something to do with derivatives pricing, you've got your corporate actions.
Speaker: And
Speaker: When you add in all of that functionality, it is quite a big chunk for a FinTech to bite off.
Speaker: Actually, what I'm excited by, and I'm sure Paul can talk about it a bit more, is when fintechs partner with the asset services, because I think then you get this kind of really exciting combination of experience from the asset services, maybe some of those third-party connectivities, but then you also get the innovation from the fintechs.
Speaker: Thank you, Liz.
Speaker: I can tell, having read out your bio, you are passionate about this space, as your title suggests, too.
Speaker: Paul, I think we touched on RPA and AI earlier.
Speaker: Is this something being developed in-house or in partnership?
Speaker: What is HSBC doing in this space?
Speaker: Following up on something that Liv said first in terms of the fintechs, they excite us as well.
Speaker: And the work that we as an organisation did with Finborn was to share our knowledge with them.
Speaker: The Design Council work was that collaboration that Liv was talking about, that we bring our knowledge, they bring their technology.
Speaker: And it's not an immediate result that you get from that because these eyeball providers are now starting after a number of years to add clients.
Speaker: But it's an exciting space and they're offering great opportunities to really sort of like challenge how the operating models or the paradigms that we have at the moment exist.
Speaker: And I think that's great.
Speaker: In terms of the RPAs, the AIs, and the other technologies that you're referring to, our approach historically has been to build a knowledge by, again, working with partners in that base.
Speaker: We had partnerships around RPA.
Speaker: We've got partnerships around AI.
Speaker: And we build up that knowledge so then we can become self-sufficient.
Speaker: And there is some really exciting stuff there that we've done.
Speaker: We've improved the timeliness and the accuracy of recording data by using robotics.
Speaker: Clients get to see fund creations and liquidations much faster than they had done previously because we have used robotics to capture the information from the transfer agencies and provide it to our clients in their eye or in their cash forecasts.
Speaker: The other exciting stuff around AI is the concept of machine learning, the concept of being able to start predicting things.
Speaker: We're doing some great experiments at the moment around how we can predict failed trades.
Speaker: With the CSDR penalty regime just about to go live next year, if we can prevent more trades from failing by being able to predict them and analyzing the petabytes of data that we have around transactions,
Speaker: We're in a much better position to start offering our clients some real value-added services around how we can advise them as to the transactions that they're doing, the likelihood of failure so that they can actually make steps in advance to avoid those penalties.
Speaker: Brilliant.
Speaker: Thank you, Paul.
Speaker: Liz, there's something that came up when you were actually talking ahead of this conference, which, to be honest, I didn't understand.
Speaker: You mentioned about product P&L and your thoughts on how a future solution works.
Speaker: perhaps could support from that P&L.
Speaker: Maybe you could help me and maybe other people on the call as well in terms of what you meant by it.
Speaker: Yeah, and I would probably expand it from product, but maybe say product or client level P&L.
Speaker: I think one of the things with this margin pressure that asset managers need to be much clearer on is who in their operating model or who in their client landscape is really adding revenue but also a lot of cost.
Speaker: And so, for example, if you have a client which requires a particular settlement approach or particular cash approach,
Speaker: or it requires a bespoke report, or maybe it requires some bespoke data, is that actually contributing more cost to your operating model than the value?
Speaker: And at the moment, asset managers may have a sense of that, but they can't tell in a data-driven way from their operating model.
Speaker: think one of the big advantages of these highly integrated database models is that as they're working you can get data insights on how they're working so you can immediately spot parts of the model where there's a constant issue you know paul gave the example of trade fails and but right across the model you might have data which which can alert you to that and similarly you can start to spot where is a particular client or a particular product
Speaker: really costing you a lot because it's always the product which needs a bespoke service.
Speaker: So I think it's really about how the data of these operating models gives you MI that can sort of power your decision making.
Speaker: And that's quite sort of an exciting new development as well that asset managers just don't have access to today.
Speaker: No, that is interesting.
Speaker: And I think I can understand from a product perspective, but you also mentioned client and Paul, I think earlier you were talking about personalization.
Speaker: So I guess that is, Andy, because I'm wondering what your thoughts were on
Speaker: product P&L or client P&L in this context?
Speaker: The client P&L, product P&L is important to the asset manager, definitely.
Speaker: And I think where you have to start is going back to your data.
Speaker: You need to have a data strategy that understands what data you need to manage your business.
Speaker: And the cost of personalization, the cost of running a portfolio,
Speaker: And changing that can only be evidenced in terms of the value if you have the right data elements.
Speaker: It's very key.
Speaker: We've had conversations with clients around personalization and the need to actually produce Navs far cheaper or getting exposure to a greater range of securities.
Speaker: There's fractionalization of shares.
Speaker: that is occurring in many markets now making it possible for direct investment rather than through a unitized product.
Speaker: But what you've got to understand is you might save some cost on the end of the process, but are you shifting it further up the investment cycle?
Speaker: Does the savings on NAVs mean increased transaction costs around settlement and trade matching?
Speaker: The only way you can get to that is actually having the data and knowing the data points.
Speaker: So going back to that first question about are the asset managers being brave and are the asset managers looking at their
Speaker: models.
Speaker: One thing I would say, start with your data.
Speaker: Start with your data strategy.
Speaker: Understand your data needs.
Speaker: And the data then almost starts answering some of your questions or some of the operating model challenges that you need to address.
Speaker: By getting your data in a state where it actually is helping you manage the business, you're in a much more powerful situation to have an operating model that
Speaker: is going to drive out the cost benefits and the efficiencies that you really want.
Speaker: Thank you.
Speaker: Probably it'd be omiss of me to not ask a question on crypto, when everyone's talking about crypto at the moment, but the whole discussion we've had on crypto, how do you think middle office solutions adapt to cater for these types of assets going forward?
Speaker: Yeah, well, I think a lot of the focus of our part of the industry when blockchain came to the market was on how we make blockchain into DLT and how do we have private networks and how do we use that technology for our own purposes.
Speaker: But actually, over time, what seems to have happened is that the crypto public blockchains have turned out to be more interesting.
Speaker: And so I think what we've seen from a lot of the asset services is them either developing or buying crypto custodians to add on to their operating model, because I think that we're certainly seeing demand for crypto assets from high net worths from some institutions.
Speaker: But I think still it remains the case that the majority of asset managers are not crypto investors, but it is an interesting trend for the future to see some of these growth.
Speaker: So in your opinion, on the subfold front about is there a role, A2B3,
Speaker: That's an interesting question, Dale.
Speaker: One of our competitors is obviously an owner of an OMS platform.
Speaker: Is there another platform out there that's worth purchasing to try and sell in that way?
Speaker: It's probably a step too far.
Speaker: What is key to us is that our clients pick their OMS platforms and we have to remain agnostic to that.
Speaker: We have to be able to remain to support whichever platform that the client wants to use.
Speaker: Therefore, what's key is that we have partnerships and we create and form partnerships with the providers of those OMS platforms.
Speaker: The Black Rocks, the Charles Rivers, the Simcorp Dimensions, the Bloombergs, etc.
Speaker: I'm not trying to exclude anybody, but just to obviously mention some of the major ones.
Speaker: So we create partnerships with these organizations.
Speaker: We work closely with them.
Speaker: We understand the way data is integrated within those platforms.
Speaker: We understand how we can operate those platforms or work with our clients on those platforms.
Speaker: And our approach is to support our clients through those partnerships.
Speaker: Because I think we offer a better and more rounded solution rather than actually focusing on one rather than the others.
Speaker: Thank you all for sharing that knowledge.
Speaker: Of course, if you want to discuss any of these aspects of today's discussion, please reach out to your relationship manager or indeed me, or I think you did talk about Vintech earlier.
Speaker: Please feel free to contact us on Vintech Space 2 and we'll certainly direct you to the right person.
Speaker: So thank you and goodbye for now.
Speaker: This has been the Markets and Securities Services Outlook, a podcast miniseries produced especially for HSBC Global Viewpoint.
Speaker: To learn more about HSBC's Markets and Securities Services offerings, visit gbm.hsbc.com forward slash solutions forward slash securities dash services.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
