These leaders debated whether regulation runs the risk of being a tick box exercise without recognizing that managers have already retreated from many of the high emission sectors they invested in five years ago. “The point is that we only get to net zero and stay there if the entirety of the economy moves on,” said Julia Hoggett, CEO of the London Stock Exchange. “So that’s every asset on the exchange and understanding the impact of every stock.”

However, some believe regulation has already had an impact on performance. BNP Paribas Asset Management CEO Sandro Pierri observed that with SFDR, the manager’s Article 8 and 9 funds are outpacing any other product by a significant margin (20% growth versus 2% growth).

But nuances remain as the transition doesn’t happen in a straight line with regulation. “Sometimes emissions need to go up before they go down,” noted Ferrini. “So, we need to work with regulators, consultants, clients and advisors on how these buckets are defined because at the moment it’s either in a public or private bucket, or a green or brown bucket and the taxonomy is punitive to anything with a high emission.”

In summary, panelists provided an outlook for what the world of sustainable investing will look like in 25- years’ time. They foretold that ESG integration will be standard, and that the quality of data will be vastly improved thereby ensuring total transparency.

Creating and Distributing Actionable Insights

Given the complexity of ESG data, the organization of that data to enable the delivery of clear information to clients continued into the afternoon of Day One. Speaking to BBH on the side lines at the conference, Terry Yodaiken, Head of Distribution Support at First Sentier Investors, observed that: “From a sustainable funds regulatory perspective some challenges still faced are around data organization. Firstly, in order to provide those data sets to investors to comply with the regulation but also to ensure we’re delivering information to investors in a way that they want to receive it.” Collaboration is key and managers look to vendors to help obtain and acquire ESG and sustainable finance data but also with how they deliver and disseminate that to market.

In an operations stream focused on translating complex data into actionable intelligence to meet regulatory and client needs, a panel of data management and reporting vendors discussed latest approaches to organizing, using data to create opportunities and capture market share.

The audience heard that the buyside has been challenged with creating digital data from unstructured data in research, allocation, execution, and post-trade, which they can use to act on during the investment process. The move from unstructured to structured (analogue to digital) has already resulted in significant shifts in the value of assets. This is evidenced in the FX market, where such shifts have increased the size of the market to $6 trillion, in equities, which is worth about $46 trillion and in fixed income, which is worth about $116 trillion. “That migration benefits the industry because the investible universe becomes broader,” said ICE’s Stephen Baker.

“If structured data could be created out of structured data in sustainable finance, that’s a very real use case, and is then either used in Europe to meet SFDR or client needs of demands around sustainable finance.” Baker suggested participants should normalize the data attributes of underlying organizations as unstructured data to draw comparisons between one organization’s environmental friendliness to another. “That presents a real shift in the paradigm in being able to address sustainable finance and use it in the regulatory process”, he said.

Conference delegates were reminded of the regulatory initiatives coming down the line that required the industry to address its data issues. For example, the European ESG template (EET) is likely to become the largest template with nearly 600 data fields. Managers will need data and technology internally and externally from fund administrators and other third-party providers, in the extended version by the end of 2022. They will need to insert their calculations derived from ESG providers they use in their investment process in the template. Thankfully, given the tremendous amount of overlap in these templates and regulations, the right data management tool and operational efficiency will enable them to reduce the amount of data points they need to gather from one news source. 

In addition to ensuring the accuracy of data in the EET, its consumption and distribution once managers get it out the door is important too. Room for misrepresentation exists if this is not done properly: “The danger is losing a bunch of assets if the manager mistakenly classifies their fund as an Article 6 or Article 8 fund. Also, if they only complete the minimum number of fields a distributor may not select them, or the fund may not get onto their platform. Whether its Article 6, 8, or 9 funds, how do they make sure that it is represented on the right platform, and to the right vendors. We’re trying to solve for those issues for asset managers, who are on the hook for the correctness of the data. They need to have the right processes in place for the right templates, to push them out and then check them.”

New technology can help managers with their fund prospectus, by translating the static data, and getting it out into the market, thus providing the transparency that allows oversight and produces innovation. Companies have gone from taking flat files to taking in APIs, to intraday feeds, taking raw feeds from exchanges and are embracing the cloud. The cloud ensures provenance that the way you’re accessing the data is right for you as an organization, then you're able to take that complex data and make it actionable.

Transfer Agency Alignment

Another area asset managers are looking at closely is transfer agency. Many managers have multiple transfer agents across the world and from an investor experience perspective they’re seeing their investors having to transact through multiple platforms and with multiple transfer agents to access their various fund ranges across the globe.

“So, for us, aligning on a single transfer agency presents a huge opportunity not just on delivering a better investor experience, not just on onboarding and reporting, but increasingly on organizing our data in a way that means we can optimize our service delivery to customers,” said Terry Yodaiken, Head of Distribution Support at First Sentier Investors.

One area many firms still grapple with is distribution data given the proliferation of nominees, platforms and custodians and distributors. Organizing distribution data and investor data in a way that enables an asset manager to truly understand the investor base is paramount. That’s no easy task due to the disparate nature of data and because it’s very opaque.

Yodaiken shared thoughts on how his firm is dealing with this challenge: “We’ve embarked on a project with a vendor to help us organize our client’s data in a particular way that provides to a degree possible a look through of all that opacity. So, we’re able to match the underlying investor with the client as we know it. That way we’re able to provide a high degree of transparency around investor data, their assets under management, their flow information and how we’re engaging with those investors over time.” 

Democratizing Private Markets

Audiences also heard about the drive towards hyper personalization of the investor experience (yet a solution remains to be seen) and while the democratization of private markets is gaining momentum, many investors remain unclear of what they are buying into. An operations panel featuring BBH’s Alternative funds product expert, Lata Vyas, noted a soaring increase in demand for these assets (from $3 trillion to $8 trillion in 10 years, according to Cerulli Associates) as retail and institutional investors look for something more stable, and with less short-term volatility.

This standing room only private markets stream addressed the role of education and technology in facilitating a broader adoption, including by mass affluent and high net worth investors. “Private markets are still perceived as complex, and there are differences in language and understanding, from private banks to asset managers. So, early engagement with service providers can help ensure a product meets investor requirements is available on day one.”

Crypto-Only For the Brave?

During the week that Coinbase registered an earnings report with the SEC explaining what would happen in the event of bankruptcy proceedings, a panel of industry participants at FundForum debated the pertinent question: is crypto only for the brave? This panel, comprised of traditional custodians: State Street and Societe Generale, as well as crypto ETP issuer 21Shares and fintechs Iconic Holding and Scrypt Digital, who discussed what was needed for further adoption and the reticence of some investors to go into crypto. The audience heard that safety and soundness is paramount, so institutional custody has a role to play. There are “260 providers running around claiming to offer crypto custody,” an audience heard, but last week’s events highlighted the risks and the importance of collaboration of traditional incumbents (with more than 200 years of experience of holding assets in custody) and new fintech providers, supported by regulatory evolution. In the absence of a regulatory framework, investors remain reticent.