Ben Slavin (pictured), Global Head of ETFs, Asset Servicing, BNY Mellon, has spent probably among the more interesting couple of months of his, or anyone else’s, career settling into his new role within the bank, having arrived with a long track record working within the asset management industry and ETFs, with firms including WisdomTree, iShares and ProShares.
“I have spent all my time on the client side of the business,” Slavin says. “I come to the bank with a different set of perspectives from the asset management side, looking at ETFs but with a global lens to the business, as well as to facilitate growth and to push the banks’ asset servicing capabilities into the future.”
Slavin is in charge of the ETF business at BNY Mellon for all asset servicing for the ETF ecosystem that the bank supports, from custody, accounting, administration, liquidity, securities lending and foreign exchange, effectively the bank and middle office.
“You need a wide variety of skill sets to do this job,” Slavin says, citing his experience in product development and ETF marketing and distribution at various points in his career.
“Product development and marketing is becoming increasingly important in this competitive environment,” he says. “Our clients are asking us for more than just the basic accounting and so on, but also help and guidance in some of the other parts.”
BNY Mellon is top of the leader board in terms of servicing the industry globally, Slavin says. “Our current assets are at an all-time high this year with about 15 per cent growth net in assets under management, inclusive of fund flow and market performance.”
He takes it as a mark of the resiliency of the bank that this has happened during the height of the market volatility. From a statistics standpoint, the 2020 monthly average YTD is up 56 per cent vs 2019 in primary market order flow. BNY saw record volume in the Spring, peaking in March with close to three times the normal volume.
During the heightened market volatility earlier this year, BNY processed approximately USD600 billion of primary market order flow (a/k/a/ notional size of creation redemption activity) across more than 61 different APs (globally).
“This was achieved with technology driven during the work from home environment,” Slavin says.
Since he arrived at the bank, BNY Mellon’s investment management division has launched its own ETFs, making Stephanie Pierce’s team, effectively, his internal clients.
Commenting on the period of market volatility in the early part of the year, Slavin says: “It’s been an incredible test for the industry and in my view the industry has done a great job in passing that test.”
“I believe that this recent period of volatility has really positioned ETFs to continue the upwards trend in capturing market share” Slavin says. “ETF growth is poised to smash records this year, flying right into the face of volatility.”
Flows for the first half were strongest in fixed income and commodities with the vast majority coming in to gold, Slavin reports, but he observed positive flows across the board as investors, in the end, “are voting with their dollars” as Slavin puts it, “and ETFs are the beneficiary there.”
Slavin believes that the same qualities of ETFs, oft repeated, of liquidity, transparency and the ability to use them as a price discovery vehicle, plus the US’s added benefit of doing all of those things within a more tax efficient wrapper, have all benefited the EF industry.
For Slavin, the hot topic for this year is active non transparent ETF (ANTs).
“It’s a significant development for the industry,” he says. “I believe that it is fair to say there will be quite a big increase in new product launches in the second half of the year using the ANTs structure and it will also push new entrants into the market as there are certain active managers who have been slow to launch or asset managers who have not gone into ETFs yet. This is the catalyst that will push them over the top.”
“We have had several conversations with our active clients who are keen to understand the structure and ready their business to enter this space.”
Mellon is servicing ANTs already, post the launches from American Century and Legg Mason. The firm is agnostic across the various structures that are available in the non or semi-transparent space, servicing all of them.
“It puts a lot of pressure on the banks or asset servicers to really make some pretty significant investments in the technology and the operating model to support these products to facilitate the industry’s growth. The assets will hopefully come and it will take some time for the market and the shareholders to really rally around a particular structure or two but we are agnostic as to which structure will take root with investors.”
The firm has developed specific technology to support ANTs, relating to the way the authorised participants interact with ETF and custodians regarding restricted securities that might be in the basket or effectively hidden.
“We have built technology to automate that function on behalf of the funds, which is a differentiator for us as we feel quite strongly that technology will be a big driver in our growth.”
The ETF platform that the authorised participants and market making community use to facilitate the order volume is completely automated.
“That we could deal with that massive increase in order volume was a testament to the resilience of the technology. The only way you could process that much would be in a completely automated environment.”
What lies ahead, Slavin says, is the development of the technology to cover the ANTs products and also a continued enhancement to fixed income custom baskets in line with the ETF rule.
“My belief is that the ETF rule will be a catalyst for additional development in fixed income ETFs,” Slavin says. “It makes sense that the vast majority of players will make use of custom baskets to effectively manage portfolios and we have the technology to support that and remove friction in the system. We are making investments there so everything is done in a straight through processing manner.”
Slavin believes that Europe will continue to see growth in the ETF space. “All the data is pointing to continued growth across the continent and I am starting to see shifts in investor behaviour and the regulatory regime that remind me of the US several years ago.”
What facilitated growth in the US was the regulatory environment in terms of facilitating the move towards passive, and highlighting fee disclosure, Slavin believes. “The market structure in Europe also is moving towards centralised clearing with Euroclear trying to remove some of the friction, which is constructive.”
Slavin also observes some green shoots of new opportunity in asset allocation models such as the robo-adviser model, and its inherent step towards lowering fees.
“All of these things are constructive for ETF growth but how quickly and how much are the questions, but it is trending in the right direction.”
Another phenomenon of this year is a big rise in active management inside the ETF wrapper with a record amount of launches and flows into actively managed ETFs. He also notes a significant uptick in interest in the defined outcome strategy, with many clients launching those types of products.
Asked if he thought they would wipe out the annuity market, he says: “Not right away but they will challenge the annuity market as the same things that people like about ETFs would apply here but compared with annuities – liquid, transparent and low cost. It’s an extremely attractive combination and the insurance companies will have to step up their game to compete with these products to gain any traction. Insurance companies have the ability and the balance sheet to be able to leverage their capability.”
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