BNP Paribas Asset Management is exploring new business models based on tokenization and blockchain, both to enhance distribution as well as forge new ways of doing business, says Emmanuelle Pecenicic in Hong Kong.
Pecenicic has recently been appointed head of digital strategy and head of digital for Asia Pacific. Based in Hong Kong, she previously served as digital transformation manager, focused on adapting technology to enhance portfolio performance.
The €400 billion ($477 billion) investment firm has created a lot of proprietary technology in Europe that is being applied to Asian business models, often in new ways, she says.
Among the various projects she’s involved with, Pecenicic highlights three: distribution, portfolio construction, and tokenization.
Distribution
BNP Paribas A.M. operates a B2B model in Asia, which is the norm. It sells funds through banks and brokers. In Europe, the firm has began moving towards a B2B2C model, developing customer-facing applications and experiences to support its distributors.
This involves packaging information, investor education, and market views in a gamified manner, to help its retail and private-wealth distributors better engage with customers.
The firm is looking at how to bring this sort of model to Asia, but it is starting with online platforms rather than traditional partners. It began working with broker Futu Securities last year to develop a package of services, delivered via API. This is an ongoing project that will allow BNPP A.M. to promote APIs that include an internally built robo-advisory service, marketing content, reporting tools, and social-media posts.
Pecenicic cites PwC research that predicts that, from 2020 to 2025, around 50 percent of new inflows to asset managers in Asia Pacific will come from online platforms. “We need to be ready to engage with these players in a scalable way,” Pecenicic said.
If these relationships work, she says the firm will look to API-enabled services for banks as well.
Portfolio construction
In her previous role, Pecenicic helped drive adoption of technology to improve performance, by integrating artificial intelligence and alternative data into investment processes.
Out of this emerged BNPP A.M.’s proprietary algorithms to build better portfolios; the firm used the same tech stack and quantitative advisory skills to develop its internal robo advisor.
Blockchain could open up new distribution channels
Emmanuelle Pecenicic, BNPP AM
The first use of its machine-learning teams was to generate sentiment analysis by scouring the internet for news that could be tagged and categorized; out of this, the firm’s quant teams developed research for the portfolio managers.
Now, Pecenicic says, the firm is using those learnings to develop ESG scores. “We’re integrating alternative data to our ESG scoring frameworks,” she said.
Tokenization
The third area she is exploring is securities tokens that would fall under formal regulation.
“We see tokenization in two ways,” she said. First is structuring mutual funds to invest in previously illiquid assets, such as infrastructure debt and other forms of private credit. By representing these assets as tokens exchanged via blockchain technology, BNPP A.M. can fractionalize them and make them more readily tradeable.
This not only opens doors to new investors but also makes actively managed funds more competitive against exchange-traded funds. The efficiencies of blockchain means these funds can operate at lower cost, and with accelerated settlement cycles. Putting funds on a distributed ledger should also simplify and automate relationships among fund managers, custodians, transfer agents, distributors, and investors.
This is in line with the firm’s move from pure B2B into B2B2C – and could serve as a stepping stone towards direct-to-consumer activities, although such a move remains speculative.
“Blockchain could open new distribution channels,” Pecenicic said.
The second aspect of tokenization is creating products. The firm is looking to combine tokenization with its work developing new portfolio-construction techniques. With ESG, for example, the firm is not just embedding analytics into its risk models. It is also looking to create ESG products that combine aspects of “green” assets, such as a green bond, with information such as a credit analysis. Using smart contracts, security information and value-added analytics can be separated, so that some remains private while other aspects can be public.
Pecenicic says it’s too early to discuss specific product ideas but notes that blockchain-based technology can enable efficiencies beyond just trading and settlement – it can create entirely new packages of value that fund managers can use to support their counterparties and clients.
The challenge with all things blockchain is the need for a critical mass of players to join the same platform. She says a large firm like BNP Paribas A.M. has the opportunity to take the lead and try to bring the rest of the industry along. “It’s an ecosystem. We can’t do this by ourselves. But a large financial institution can be a leader,” she said.
