BNP Paribas Asset Management’s UK chief continues to see private assets as an attractive play, despite valuations coming under pressure and a regulatory crackdown.
Roger Miners told Financial News that client flows this year have been strongest in its money market funds and ETFs — a trend he sees continuing well into 2024 — but European investors are also continuing to position toward private assets.
“The democratisation of private assets is very real,” he told FN. “Private assets have slowed down but there is still very much a tactical move toward that [asset class].”
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Private assets have been a big area of growth for asset managers as investors ditch traditional equities and fixed income in the hunt for higher returns.
Meanwhile, governments and regulators have been encouraging retail and institutional investors alike to redirect cash toward private markets as a way of jumpstarting economic growth. In the UK, the long-term asset fund, which invests in less-liquid assets like property and renewables, is being heavily promoted to pension funds.
But the asset class has come under pressure as global interest rates have shot up, leading financial watchdogs to raise concerns over the sector.
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Nikhil Rathi, chief executive of the Financial Conduct Authority, said in October the regulator was planning a sweeping review of valuations used across private markets.
Rathi told the Financial Times there was a risk that an environment of higher interest rates for longer “will crystalise in valuations of assets”.
BNP Paribas AM has been deepening its presence in private assets. In March 2022, it acquired a majority stake in Dynamic Credit Group, a Dutch mortgages and diversified loans specialist. Later that year, it merged several units within its own firm to create a €30bn private assets business, which now employs over 100 people.
Easing into ETFs
ETFs are another area the French asset manager has been increasingly pivoting toward.
Investors have flocked to funds offering better liquidity and lower fees this year against a daunting environment of interest rate hikes, elevated inflation and tepid growth.
European ETFs have raked in €104.5bn of net inflows over the first nine months of 2023, as actively managed mutual funds have suffered net redemptions of €36.6bn.
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BNP Paribas AM was the seventh-highest seller for ETFs in Europe in September, bringing in €207.6m and beating out more established players, such as Legal & General Investment Management (€164.5m) and State Street (€107m), according to data from Morningstar. Year-to-date it has seen €3.2bn of net inflows, taking assets up to €21.4bn.
But unlike larger rivals, BNP Paribas AM only plays in the sustainability thematic space.
“We are not competing against the Vanguard and iShares of this world… but we’re doing well on the ETF side,” Miners told FN.
Tough markets
Concentrating on these areas has been helpful at a time when mutual funds have been under pressure and haemorrhaging cash.
But Miners, who is also head of distribution for Europe at the French bank’s fund arm, sees appetite for actively managed funds returning — although he admits the market environment needs to improve before investors take the plunge.
“There is a real demand to come back on the active side we’re picking up on. Whether it is the back end of next year or into 2025 is difficult to say.”
With the cost of salaries, regulation and technology increasing alongside investor preference for lower margin products, Miners said 2024 will remain “challenging” for the industry. As such, it’s also likely to be “an environment where M&A is more attractive”.
Asked whether Miners is eyeing any potential deals, he said: “We’re not only considering — we’ve done it and will do more of it if the opportunity comes along”.
As well as DCG, BNP Paribas AM also snapped up a majority stake in Danish natural capital business International Woodland Company in December 2022.
However, Miners said any potential purchase would need to complement the culture at BNP Paribas AM. “Unfortunately, as an industry we have too many examples of that not having worked well,” he said.
To contact the author of this story with feedback or news, email Kristen McGachey
