A faster route to efficiences
In the last year, global asset managers have faced a challenging combination of rising interest rates, increased volatility, and an outlook of uncertain or lower returns. With those market dynamics being stubbornly persistent, managers are looking for new ways to reduce costs, mitigate risks, and improve efficiencies. Those efforts become even more important when looking ahead to market infrastructure changes such as the move to T+1 settlement in the U.S.
A conventional starting point to solving those challenges is to review vendor relationships such as their Order Management System (OMS). However, such efforts can take several years when factoring in review, selection, and implementation. Instead, BBH is seeing many managers taking a more surgical approach by optimizing individual elements of their operating models, with one focus area being operational FX solutions. Areas of focus include leveraging Transaction Cost Analysis (TCA), general settlement FX flows, emerging market workflows and currency hedging solutions. A relatively quicker “fix”, this allows managers to realize cost and operational efficiencies in a shorter timeframe.
TCA and restricted market investments
To assist with these efforts, in 2022 BBH added additional TCA capabilities and tools to provide data-driven analytics across all products and set up direct feeds with multiple external TCA providers. This has cut down on manual work for clients and allowing for timelier, more accurate reporting from providers. Additionally, we now offer TCA reporting across all our FX products, available for regular delivery to clients or on an ad hoc basis.
InfoFX®, our automated solution for transactional FX, allows clients to use market data and spread analytics to help with execution timing decisions and conduct bespoke analysis of order volume history. This provides clients a more active view into their operational FX activity in real time.
We added additional automation in our restricted markets offering to give our clients even more flexibility in trading 3rd party FX away from their custodians in key emerging and restricted markets. Upon implementing InfoFX’s restricted markets capabilities, clients have seen meaningful improvement in execution quality in these select markets, resulting in measurable savings to their end investors.
We seek to establish relationships with outside organizations that believe in partnerships committed to a model of mutual success. Our relationship with BBH and their InfoFX team has been nothing short of fantastic in that regard. Implementing this solution was one of the best decisions we have made but the people we have worked with at BBH have helped us with things that go far beyond FX. Evan Fire, Chief Operating Officer and Managing Principal, Pzena Investment Management
Rules-based hedging enhancements
While InfoFX solves for settlement related FX, Currency Administration is our rules-based solution for hedging at both the share class and portfolio level. With respect to hedging, we have seen an increased focus from fund boards and investors in globally distributed funds on the efficiency of hedging mandates with a requirement to demonstrate hedge effectiveness through automated performance analytics.
To help managers validate the effectiveness of the program and communicate results to end investors, BBH deployed a new user experience within our Infuse portal that includes performance analytics tools to calculate the market and implementation related factors resulting in hedged vs unhedged performance dispersion, down to the final basis point.
Looking ahead, we continue to enhance automation and connectivity of InfoFX and Currency Administration to support spot and forward FX workflows across the asset manager operating model. We will also continue integrating our FX solutions with BBH’s suite of Investment Operations products. With the U.S. market moving to T+1 settlement in May 2024 (and other markets likely following) fund managers - particularly in Europe and Asia - will be required to perform the same number of post-trade activities in a compressed amount of time. Just as we have developed solutions to solve for today’s settlement FX workflows, BBH is well positioned to help our clients navigate the adoption of T+1 as managers assess the impact on their FX process and overall operating model.
This update is intended only for distribution in the United States, United Kingdom, Switzerland and Japan.
Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2023. All rights reserved. IS-08738-2023-03-20
