BNY Mellon report: one-third of central banks plan to invest in new markets and asset classes

Source: BNY Mellon

A new report by BNY Mellon, a global leader in investment management and investment services, in collaboration with the University of Cambridge Judge Business School, finds growing engagement by central banks in investment and trading activities beyond traditional boundaries.

According to the report, one in three central banks say they plan to invest in new markets and asset classes while half the central banks are planning a technology upgrade to deal with the growing operational pressures of these additional activities.

“Some central banks are switching from an in-house to third party core system while others are upgrading or improving interfaces between existing platforms,” said Daron Pearce, CEO, BNY Melon EMEA Asset Servicing. “Central banks are also responding to the need to build more robust defences against cybercrime.”

The report draws upon data from an interview-based survey of central banks from across three continents conducted by Cambridge Judge Business School and built on the expertise of BNY Mellon staff serving the central banking sector. It finds that while most central banks’ portfolios are weighted towards major currency government bonds and money market instruments, there is evidence of a growing sophistication and innovation by institutions willing and able to invest beyond established parameters.

Other key findings in the report include:
• 39% of central banks surveyed are investing in equities
• 61% actively participate in repo markets
• 72% are using derivatives as part of their investment management activities
• While one-third of central banks currently undertake securities lending activity, others expressed interest in doing so in the future

“Like all institutional investors, central banks have had to adapt to a prevailing low-yield environment over the past decade,” said Marvin Vervaart, EMEA Asset Owner Segment Head at BNY Mellon. “Disappointing yields from traditional asset classes have led central banks to re-think their investment strategies. A wide range of instruments are being targeted, including equities, corporate bonds and real estate, and in some cases central banks are engaging third-party investment managers rather than their in-house resources.”

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