BBH Market Engagement Update: April 2021 Consultant Exchange

April 21, 2021
3 min read
In our first quarter update, we highlight market trends and how BBH is adapting to meet the needs of our clients.

2021 has been a year of action. While many firms paused large projects in 2020, this year has brought a notable increase in market activity, and a discernible shift in mindset from planning to executing transformation plans. In Q1, BBH added new business mandates from firms ranging in size from $1 billion to over $5 trillion.

Supporting this market movement, 30% of the executives interviewed for BBH’s 2020 C-suite asset manager survey told us they are more likely to outsource now than they were pre-pandemic. 75% said they were evaluating new product strategies, targeting new clients, or moving into new asset classes. All were looking to increase the efficiency of their operating model in some fashion.

This activity aligns perfectly with the solutions we are working on for clients and prospects and we thought it might be useful to highlight some broad themes:

Future proofing their operating models:

  • Data integration and management – Firms are increasingly issuing RFPs that include data services, validating that a flexible, data-centric operating model is a critical growth enabler. To that end, BBH recently added mandates from firms looking to integrate multiple providers into their operating models, connect to fintech enabled reporting platforms, and streamline their data process. This includes a $700-billion asset manager looking to overhaul the data preparation around fund marketing and distribution data sets and deliverables.
  • Middle office improvements – In a recent poll of 44 asset manager COOs conducted at the InvestOps Boardroom Europe event, two-thirds said they plan to implement a multi-provider middle office outsource. In line with this finding, we are executing more targeted, modular middle office implementations, including with asset managers over $500 billion AUM. The key to our success is using BBH Infomediary to integrate our service into our clients’ existing operating model. For more information, read this Global Custodian interview with the Head of BBH Investment Operations, Keith Haberlin.

Creating new sources of revenue:

  • Mutual Fund to ETF conversions – BBH was pleased to support our client Guinness Atkinson in the first US mutual fund to ETF conversion on March 29. Read the press release here.
  • Active ETF launches – Our ETF team continues to see demand for active fund launches. In our 2021 Global ETF Survey, 65% of respondents said they plan to increase their exposure to active ETFs, up from 57% in 2020. More than half of U.S. ETF investors plan on buying a semi-transparent, active ETF in the next six months. BBH recently supported one of our clients in their first active ETF launch on March 1, 2021.
  • Alternative Investments – We continue to add both traditional and alternatives managers to our client roster as more firms expand their book, put dry powder to use for new investment opportunities, and look to streamline their operational infrastructure to keep up. We and our clients are also excited by Ireland’s recent funds regime update, which included revisions to its regulated Investment Limited Partnership structure to greatly enhance Ireland’s competitiveness as an alternative funds domicile.

Adding control, transparency, and operational efficiency:

  • Operational foreign exchange – The trade outsource trend extends to foreign exchange as 40% of managers say they are targeting FX as an area of operational efficiency in 2021. BBH is seeing activity in the security and corporate actions related FX space, as well as share class currency hedging for cross border managers. We have added more than 10 new operational FX mandates in the past 12 months, with clients ranging in size from $40 billion to well over $1 trillion AUM.
  • Custody and fund services – While more firms are focused on middle office reviews and data capabilities, they are not neglecting their back office. We recently converted over $110 billion in custody assets for a top 5 global asset manager looking for better service, efficiency, and control over their data.

Preparing for regulatory change:

  • Fund Board Governance – We recently hosted a roundtable discussion for Independent Directors in Europe on AML oversight. Never before have independent non-executive directors had so much personal responsibility across a wide sphere of areas. Issues ranging from Ireland’s CP86 review, ESMA’s recent CSA on Fund Liquidity, the continued impact of Brexit on delegation models, as well as issues like cybersecurity continue to bubble up. BBH continues to engage with directors to share practical insights and assistance as they consider their overall fund governance frameworks.
  • Sustainable Finance Disclosure Regulation (SFDR) – We continue to engage with clients on the complex EU ESG rules. March 10th was a big step forward with SFDR Level 1 disclosures for managers and funds in scope. The focus for everyone is now to implement the detailed quantitative SFDR RTS disclosures aligned with the EU's Taxonomy definitions. Our Regulatory intelligence expert Adrian Whelan outlines three remaining challenges as the focus changes.

As always, our goal is to keep communication lines open, promote bi-directional insights exchange and foster discussions that can lead to mutually beneficial commercial opportunities for our firms. We welcome your questions and comments on any topic.

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