BBH Market Engagement Update: Q4 2021 Consultant Exchange

December 20, 2021
3 min read
In this issue of Consultant Exchange, we take a look at some of the key themes we are seeing in the market.

It’s been a busy few months following our September 2021 announcement that State Street plans to acquire BBH Investor Services in a transaction set to create the world’s premier global asset servicer. As we prepare for a Q1 2022 close, we continue to receive positive feedback from our clients and industry contacts who recognize the service and technology benefits that will be available to clients of our combined entity, including an extension of the BBH service model and infusion of Infomediary into the State Street Alpha platform.

We know that you and your clients have questions about our future-state, many of which cannot be answered until after the close. In the meantime, we can assure you that our goal is to build a future-ready operating model designed to deliver better client outcomes and achieve global scale. We plan to integrate the best of both firms and prioritize the continuity of services and interactions with our existing clients.

We expect the full integration process to take approximately 2-3 years across several phases, designed to maintain the operational and technology resilience and service model our clients expect. Until close, our firms are operating as separate entities focused on delivering clients our best, each and every day. To that end, BBH has continued to sign and onboard new clients. Below are some key themes we’re seeing from a new business standpoint:

 

Data Management Remains a Strategic Priority

As expected, asset managers are adding Infomediary Data Services products as they work to streamline their operating models, data flows, and prepare for SWIFT’s imminent migration to the ISO 20022 global payments messaging standards. Recently-added data servicing mandates include those from an $800B asset manager (now using Infomediary as its SWIFT messaging platform), a $185B asset manager (outsourced all developed and restricted markets operational FX to InfoFX, while leveraging Infomediary for trades, cash, reconciliation messaging), and a $100B asset manager (now using Infomediary as its SWIFT messaging and data services partner).

 

InfoFX and Currency Administration in Focus

The FX trade outsource trend continues as 40% of managers* say they are targeting FX as an area of operational efficiency in 2021. BBH is seeing significant activity in our outsourced spot FX offering, InfoFX, as well as currency administration for cross-border managers. We’ve added 8 new InfoFX mandates year to date, with 3 more implementations underway. Over 85% of the InfoFX volume is 3rd party (non BBH custody), demonstrating the flexibility of our platform to connect to a variety of order management systems, middle office providers and custodians. Further, we are delighted to partner with some of the fastest growing and most successful equity managers in the industry.

 

ETF Market is "Active"

Since our last update, we’ve expanded our ETF business as our clients enter new domiciles, add crypto strategies, and enhance their operating models with new industry tools like Bloomberg BSKT; we also expanded our support of semi-transparent active ETFs, including for a $1.2 trillion manager. New clients include a new fixed income manager backed by a ‘who’s who’ of ETF industry veterans and new thematic opportunities in the European ETF market.

We are seeing more asset managers evaluating mutual fund to ETF conversions as they look to quickly create or scale their ETF businesses. Together with K&L Gates, we wrote about some of the key regulatory, business, and operational considerations that should be top of mind for US firms looking to make the switch, but as discussed in this piece with The Maples Group, the conversion trend is not a US phenomenon.

 

Focus on Digital Assets and Tokenization

There is little surprise that asset managers continue to explore or expand their digital assets footprint, and in doing so are working with service providers to understand their support model for these asset classes. BBH is working on developing use cases that have become priorities for several clients including large institutional asset managers developing new products that offer indirect exposure to major cryptocurrencies.

Tokenization is another hot topic and BBH is exploring use cases in this area. We recently wrote about how tokenization will change the industry.

 

Access to Private Markets

As interest rates remain low, the prospect of bringing private-market returns to a broader range of non-institutional investors continues to attract significant interest. In Europe, several BBH clients have turned to ELTIFs as a way to attract new capital to private markets, while leveraging the distribution infrastructure of private banks and intermediary platforms. We recently worked with a $400B asset manager to launch a new ELTIF, helping them bridge their UCITS distribution strategy and experience with private markets product teams traditionally focused on distribution to institutional investors. While the structures differ from region to region, we continue to also see this same expansion in the Americas and in Asia-Pacific.

We are also seeing new business activity from clients of varying sizes launching both liquid and private credit funds, infrastructure funds, PE funds, secondary funds, and co-investment funds.

 

Japanese Business Expansion

In recognition of our deep relationships with Japanese banks and asset managers, we expanded our Cayman into Japan business, helping our clients launch Cayman Unit Trusts for which BBH will provide full-service support and trustee services. We recently added mandates from the subsidiaries of a $670B manager and $300B manager, both with a notable percentage of Japanese investors. We also completed a new fund series launch for a $700B Japanese manager.

 

Preparing for Regulatory Change

Last but certainly not least, we continue to spend time with our clients discussing the impact of regulatory change. Recent topics of interest include the EU’s ESG Puzzle (fueled by SFDR), the US DOL’s move towards ESG integration, and the rise of the SPAC. And despite the delay of the controversial mandatory buy-in requirements, we’re working with clients to prepare for the CSDR rules set to take effect in February. For more, please watch out for our Regulatory Field Guide due to be published in the next few weeks.

As always, thank you for your continued engagement. We look forward to connecting with you soon!

Kelly and Elaine

*Source: 2020 BBH C-Suite Asset Manager Survey

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. 2021. All rights reserved. IS-07841-2021-12-17

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