With Brown Brothers Harriman (BBH) partner Ham Lynch bidding adieu to the UK as he heads back to New York to take up an expanded role within the bank, it seems an opportune moment to review the significant broadening of activities over which he has presided during his tenure as chairman of the custodian’s London office.
Lynch has long been a prime mover when it has come to the exploitation of BBH’s highly regarded custody franchise. Indeed, during his three years at London’s Finsbury Pavement, BBH has extended its remit from two core activities – custody and brokerage – to no less than seven business lines. Foremost among these new activities were a new London-based securities lending capability targeting European clients, and a move into the open-ended investment company (Oeic) depository and unit trust trusteeship business at the beginning of 2000 – with the inauguration of BBH Investor Services – to capitalise on the dwindling number of providers in this sector.
As partner in charge of brokerage at the bank, Lynch was also instrumental in the 1998 launch of BBHCOnnect, an automated trade execution system that sought to meld BBH’s standing as a custodian to European banks with its brokerage capabilities. The latter can be seen to have been an important catalyst in the evolution of the bank’s service offering: the straight-through processing ethos that underpinned that original BBHCOnnect product – which focused on enhancing the efficiency of equity transactions on NYSE and AMEX – is now being applied by BBH to mutual fund processing.
This dual focus on enhanced automation and execution could also be seen in the launch in June of FX IndexLink, a currency trading tool that promised fund managers greater control, enhanced efficiency and reduced intra-day currency risk in the execution of forex trades, an area that has traditionally been labour intensive and hence prone to human error and delay.
At the same time, BBH has broadened its WorldView suite of internet products with the introduction of the next generation iteration of Fund WorldView, its global fund supermarket offering. A ‘one-stop’ fund execution and custody solution providing information on over 300 funds from 24 fund families and individual listings for over 12,000 funds along with online ordering and client-specific asset allocation tools, Fund WorldView is aimed at minimising the disintermediation of clients by new entrants, notably independent supermarket programmes.
“With BBHConnect we have exploited certain synergies and we now want to extend that approach in a number of other areas, such as foreign exchange, securities lending and distribution of third-party funds,” says Duncan Clark, managing director at BBH’s London office. “Even with securities lending, which is something of a different proposition in that it still involves getting on the phone to do the transaction, we have a great deal of automation in place behind the scenes that we can leverage off.”
Matching the needs of its European and US franchises is a prime consideration for BBH. “Our European custody business means that we can provide our US clients with a distribution outlet this side of the Atlantic, while at the same time offering our European bank clients an equally valuable service, which is access to global mutual funds,” says Clark. “As a custodian, we control assets and have significant leverage as we make initiatives in new capital markets, outsourcing and middle office activities.”
Certainly, an ability to exploit its custody capabilities will be crucial as BBH tackles the third-party fund business. While processing mutual fund transactions is a highly manual process, a custodian can execute the task with much greater ease, notes Clark. “European banks face a monstrous settlement problem with third-party mutual funds, but we have developed an automated process for those clients,” he says.
“Using either SWIFT or our internet platform, they can send us execution instructions knowing that the transactions will be completed transparently and efficiently by BBH in-house. We also combine this with an excellent advisory service.” That said, Clark does not downplay the challenges inherent in enhancing automation in this area: “It has to be viewed on a very different time scale to what we were able to achieve on the equities side,” he concedes. “We are getting on with it, however, and as far as the front end is concerned it is seamless.”
BBH’s custody offering also feeds into areas such as equity strategy research and private equity fund distribution, which in turn “keep us in front of the investment side” of those European financial institutions. “It is all very well being a processing and custody bank, but unless you have a way into those investment office functions you will miss the opportunity to cultivate and grow with all areas of your clients’ operation,” says Clark. “I would suggest that our mutual fund, forex and securities lending activities might easily benefit from our existing relationships with the key investment people at the leading financial institutions of Europe, relationships which were developed over the last 25 years via the distribution of, among other things, our strategy research products.”
Tim Steele is a freelance editor and consultant timjsteele@btinternet.com