To our consultant and advisor community,
Welcome to the Q4 edition of Consultant Exchange, my first as the head of industry engagement for BBH Investor Services. After 20 years in the financial services industry — the past 12 at BBH in various strategy and marketing roles for BBH Markets, Investor Services, and the firm overall — I’ve appreciated the opportunity to speak with many of you over the last three months to discuss the work we are doing together, how BBH and our industry engagement team can be most impactful to your firms, and vice versa. Our goal is to ensure our engagements are mutually beneficial. If we haven’t connected, I look forward to speaking with you soon.
With this being our first formal communication since late March, I wanted to provide an update on BBH and what we’ve been seeing from our clients over the past seven months. It’s certainly been an interesting year. Despite challenging market conditions, our business is strong.
While our workforce remains 98% remote, we’ve been pleased to provide BAU service to our clients. Since the start of the crisis, we’ve completed a significant number of front, middle, and back office conversions and supported numerous client fund launches, including the launch of new active non-transparent ETFs.
While the volatility experienced in March was disconcerting to investors, it provided BBH an opportunity to test systems resiliency against peak volumes — most notably within fund accounting as the use of artificial intelligence within our Anomaly NAV Tracking System ensured we could reduce the number of NAV exceptions by nearly 80% and deliver timely, accurate NAVs to our clients despite the twin pressures of remote work and unprecedented market volatility.
This theme translated to our secondary NAV Solution, InfoNAV, where the granularity of the independent data inputs feeding the tool led to significantly higher accuracy and fewer exceptions during peak market volatility compared with the most popular mechanism used by clients (namely Excel macros to track a benchmark).
As firms grapple with the difficulties of a distributed workforce and seek to reduce costs and physical footprints, we have seen an uptick in outsourcing decisions across foreign exchange, trade management, cash and securities reconciliations, and other investment operations functions which were previously considered core competencies for our clients.
As firms consider how to finance and execute these projects in a constrained environment, we continue to see:
- A greater focus on modular implementations, starting with one or two functions and adding more over time. As you know well, the key to a successful modular strategy is integrating the provider’s service into the existing operating model, and the proven track record of BBH Infomediary has been our key selling point as clients consider their best route to market.
- An increase in large ($500B+) managers outsourcing trade management, reconciliations, and messaging as they look to access more durable and scalable infrastructure, and free up internal resources.
- A significant number of new implementations and increased demand for our automated FX solutions (both security related FX and currency hedging) as firms look to reduce the costs associated with an in-house desk and eliminate the risk of manual processes, while retaining control, transparency, and oversight of their FX process.
- A heightened focus from global regulators on delegation and outsourcing. The most recent example comes from the Central Bank of Ireland, whose Consultation Paper 86 (CP86) noted that a “significant number” of fund management companies are not fully adhering to governance expectations and do not have resources in place to ensure compliance. This is spurring more Irish fund complexes to consider outsourcing additional functions.
Product Development Trends
As firms look to offset costs and increase yields, we are seeing clients expand their product sets and ramp up revenue generating activities. A few trends worth noting:
- Our global ETF team will tell you that 8 of 10 calls they get on a daily basis are related to active semi-transparent fund launches, as managers consider how to incorporate their investment strategies into an ETF wrapper. We also recently announced a collaboration with Bloomberg to introduce new connectivity and integration between our order-taking platform and Bloomberg’s BSKT to open the door for authorized participants (APs) and market makers to transmit all order types through Bloomberg.
- As traditional asset managers expand their investments in private debt, private equity, private real estate, bank loans, syndicated loans, and other alternative investments, we are working with asset managers to help them solve the operational and infrastructure challenges posed by these asset classes. We are also seeing continued general interest in the retailization of private market investments, both in the Americas and in Europe.
- Securities Lending remains top of mind for our clients as it continues to provide a relevant revenue stream for their funds. With a focus on transparency and control, we are investing in new ways to surface data that not only meet program oversight requirements, but integrate with our clients’ investment strategies and governance needs.
Additional Areas of Investment
While the economic environment is creating challenges for every firm, a benefit of BBH’s privately held structure is that we can keep investing in our priority areas throughout the difficult cycle. We recently introduced new or enhanced BBH Infuse digital applications for our Transfer Agency, ETF, and Direct FX execution clients. We also updated the digital interface for our InfoNAV clients and look forward to announcing updates to our Data Services offering in the coming months.
As always, our goal is to keep the communication lines open between our firms, 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.
Kelly Crowe Dagdigian
Senior Vice President
Global Head of Industry Engagement