Sequantis LT, a Sequantis subsidiary, leverages the expertise of the Sequantis teams that work with institutional investors such as insurance companies, mutual insurance companies and retirement funds. Seeking to capitalise on this expertise, Sequantis set up in 2016 a subsidiary wholly dedicated to assisting asset management companies. Its aim: help them comply with “inherited” regulatory requirements, the set of directives, laws and regulations that apply to their clients (distributors and institutional investors). As a regtech, Sequantis LT is focused on data management and processing. It carries out all the processes needed to retrieve, check, enrich and reformat data before they are used to create the reports needed by clients of asset management companies: insurance companies, mutual insurance companies, distributors, etc. As part of this service, Sequantis LT also performs all requisite calculations. But there’s more. The company also keeps a close eye on the regulatory landscape and provides guidance on interpreting regulations.
Compliance with Solvency II is key to increasing institutional clients’ loyalty.
The Solvency II directive applies to all insurance companies. It impacts asset allocation decisions and governs overall investment policies. In this, it indirectly impacts asset management companies that offer their services to institutional investors in the form of open-ended UCITS or mandates. Asset management companies are required not simply to adhere to this directive and the restrictions it places on each asset class in terms of capital ratio requirements, but also to calculate these ratios and ensure that portfolios are fully transparent so that insurance companies can accurately assess their exposure. This is a multi-level operation that Sequantis LT is able to handle.
The teams at Sequantis LT can provide advice regarding data processing requirements for a fund to be included in an asset allocation subject to Solvency II. To do this, the entire portfolio is analysed and recommendations subsequently made. These are presented in an analysis report.
Staff at Sequantis LT can also be missioned with generating a TPT file for each share class in a fund, including hedged ones, and then calculating the corresponding solvency capital requirement (SCR) to indicate the amount of capital needed for a given share. To do this, it collects book inventories and specific data on OTC instruments along with using other data enrichment processes. Sequantis LT then calculates the SCR. All data are cross-checked to prevent any error. They are then presented in TPT form along with the market SCR calculations and are delivered to clients in SaaS mode via the Sequantis LT platform.
If asset management companies already have a complete TPT file, Sequantis LT can simply calculate the market SCR. On receipt of TPT files, data are subject to quality controls before being imported to the Sequantis LT platform; calculation of market SCR, summary tables and analyses can also be provided.
The Sequantis LT service is fully flexible to match each client’s specific needs. Sequantis LT can also generate a vast number of different states to send to clients (insurance companies) and/or regulators. If necessary, Sequantis LT can also monitor confidentiality agreements relative to transparency of underlying securities.
Look through: a service required by an ever expanding range of clients.
Portfolio look through involves communicating all positions line by line, be these mandates or open-ended UCITS. This is an obligation incumbent on all institutional investors subject to Solvency II. This indirectly concerns asset management companies which, if they offer a fund of funds or manage a mandate that includes funds on behalf of an institutional investor, are required, irrespective of their size, to meet this obligation to provide information. This requirement can be highly burdensome, particularly for small asset management companies and/or those that manage highly active funds as part of their arbitrage activities.
This task, which they have experience of performing for institutional investors, can be entrusted to the teams at Sequantis LT; it is simply a matter of extending the offer to asset management companies. Staff at Sequantis LT will retrieve TPT files (in Ampère format), check and standardise the data before reassembling the complete dataset as electronic files. The scope of supply for this service includes: data cleaning, SCR ratio calculations and aggregation of underlying funds.
This service is not only for asset management companies specialising in institutional clients, it is suitable for all asset management companies that work with distributors. Although not previously an obligation for asset management companies managing institutional mandates, it is fast becoming standard across the market. This is something that all asset management companies need to accept. And they can do this by turning to a regtech such as Sequantis LT.
Simulation, a management tool to adapt to SCR restrictions.
Sequantis LT launched a new simulation service in 2018. It enables users to simulate a portfolio of securities and/or funds. The aim is to use the Sequantis LT databases to offer a wider spread of investment choices than those currently used by clients of Sequantis LT. This simulation tool can be used to determine whether adding a new fund or asset class in an asset allocation would be beneficial. This service is not limited to clients of Sequantis LT.
Asset management companies may, should they wish to do so, use it simply as a commercial tool without any obligation to subscribe to any other offer from Sequantis LT. They are able to add their funds to the tool, enabling them to demonstrate under real-life conditions the benefit of subscribing to their funds or one of their products subject to SCR restrictions.
Asset management companies that are not clients of Sequantis LT can offer their funds in this tool at no cost, provided that they renounce rights to how their data is used, or pay a fee should they not wish to do so.
Climate change, ESG and carbon footprint
More and more investors take into consideration climate change, which goes further than an investment strategy based on ESG and carbon footprint.
This trend has been stepped up by regulations impacting financial investments. We can notice this in France in the article 173 of the Energy Transition Law (soon to be replaced by a new Energy-Climate law), which requires Institutional Investors to report about these factors in their investments ; or in the climate stress-tests initiated in 2019 in the UK by the Bank of England. Reputational risks have also been a factor, few institutional investors enjoying to be seen publicly as contributors to climate change and global warming.
This translates into the management of investments, by applying new methodologies in asset selection, to comply with ESG and climate principles.
This also translates into the follow up and reporting of portfolios. New types of reports are needed, to control and communicate (e.g. with clients and shareholders) to show that ESG-climate principles are taken in to account.
In this context, Sequantis LT has developed a reporting offer about ESG, carbon footprint and climate change, for Institutional Investors and Asset Managers.
This service is rooted in our ability to process high volumes of data through automation, with a high level of quality in financial data. We differentiate ourselves from other existing reporting offers in our capacity to measure the real exposures in financial investments thanks to : a look-through process for funds, for derivative and OTC instruments, and a breakdown of corporate activities.
The reports we generate enable our clients to compare their financial exposures with ESG, carbon and climate impacts, in precise and homogeneous ways. These reports include recent regulatory changes, such as the European taxonomy, which defines sustainable investments in an elaborate classification.
PRIIPS, a regulation that will radically alter the way funds are sold to retail investors.
PRIIPS and MiFID II both set out to improve information provided to investors, enabling them to compare products in terms of fees and performance and thereby creating a true European market for retail investment products. This means that asset management companies are required to produce new types of reports. This burdensome task can be made easier with assistance from the teams at Sequantis LT. The Sequantis subsidiary has created a data storage platform for all the requisite data, which will be fully audited. The platform makes it possible to generate custom Key Information Documents (KID), which have to be issued to retail investors, in real-time and in multiple languages if needed for products marketed in different countries.
As part of this service, Sequantis LT collects and checks the data, returning them in the appropriate formats. Product characteristics can be supplied by asset management companies or deduced by Sequantis LT from existing prospectuses. Similarly, price data can also be supplied by managers or collected by Sequantis LT. Only data about fees must be fully completed by the asset management companies.
The platform offers standard KID that can be adapted for use in distribution networks by adding the logos, fonts and colours particular to any one network. Custom KID can also be created, including different ones for each category of client. The platform is configurable to adapt to different management profiles.
Note also that this service includes collecting all necessary data on third party funds used in each management profile.
MiFID II, a fundamental directive for asset management companies.
Cette directive européenne a pour but d’unifier et d’harmoniser la protection de l’investisseur au sein de l’Europe.
Elle encadre à ce titre les Bourses traditionnelles et les plateformes de négociation, mais aussi l’ensemble des services fournis par les entreprises d’investissement. Ces derniers doivent dans ce cadre notamment communiquer sur les produits proposés au public à travers des documents standardisés. De la même façon que pour la mise en conformité vis-à-vis du règlement Priips, Sequantis LT, la plateforme utilisée pour Priips, peut générer des fichiers adaptés à la directive Mifid 2. Elle permet l’élaboration des KID (documents de référence réglementaires à mettre à la disposition des souscripteurs de produits d’épargne). La différence principale avec les documents de référence adaptés à Priips réside dans la génération de documents supplémentaires sur la présentation des frais.
AIFM, reporting to monitor alternative investment fund managers.
Incorporated into French law in July 2013, the AIFM directive is designed to control the activities of so-called alternative funds, meaning all those not regulated by the UCITS directive. Specifically, it concerns real estate funds, hedge funds and investment capital funds. Among the new obligations is a requirement to submit a report to the regulator.
The report is descriptive and must highlight risk monitoring processes. The regulator is seeking to monitor systemic risks. Among the risks to analyse, liquidity risk is subject of considerable scrutiny, be it for asset (time needed to sell portfolio) or liability (time needed for bearers to exit).
As a reminder, following the 2008-09 crash, many hedge funds were unable to liquidate their positions, effectively locking investors into their funds. The regulator’s intention is to be able to monitor flagrant imbalances between assets and liabilities.
Market risk in the form of stress tests is also analysed, as well as funds’ leveraging and indebtedness. All this data must be communicated to the regulator. The teams at Sequantis LT can use the reference data provided by asset managers to produce the various calculations needed to create the final report ready to send to the regulator.