Did you, like me, have to stifle a yawn when you read the “news” that BBH had been in talks with BNP Paribas Securities Services about a possible merger? “Here we go again,” was my initial reaction. Those of us who have been in and around the industry for more years than we care to remember have been here many times before. There is perennial chatter about the imminent demise of BBH, almost as if people think it would be a good thing. It wouldn’t. In fact, were BBH to lose its independence, it would be a serious blow to the whole investor services market.
BBH thinks differently to every other provider in the inserv sector. In part, that’s because necessity is the mother of invention. BBH does not have access to huge buckets of capital, and it is obliged to spend its partners’ money wisely. That makes it think long and hard about its strategy, rather than throwing money at the wall and seeing what sticks. It doesn’t do acquisitions for market entry or market share. It is almost never the first mover. But, once the strategy is set, there is no provider better at execution. There are countless examples – Infomediary, ETFs, alternatives, outsourcing, TA, inter alia – where BBH has looked at the world slightly differently and come up with market-leading client-centric solutions.
As a result, BBH sets standards. Whether it is U.S. sub-custody, the U.S./Europe/Asia nexus, client management, or the offshore business model, BBH has led the way in many product and service spaces. It continues today: its largely unheralded client portal, Infuse, which is currently in roll-out, will leapfrog many of its competitors’ offerings, whilst its recently launched Connectors platform is truly innovative. Meanwhile, BBH supported the first conversion of U.S. mutual funds to ETFs earlier this year.
It helps that it is under no pressure to deliver quarterly updates to Wall Street and the intellectually challenged analysts that work there. It can afford to take the long view. (Famously, a BBH partner based in Hong Kong once reported to his fellow partners on a conference call: The good news is that we’re going to make a lot of money in China. The bad news is we’ll all be dead before that happens.). It took years to convince BBH partners, for instance, that it should be in the alternatives space. Now it’s a major player, with USD277bn AuA at y/e 2020.
Granted, BBH has suffered some high-profile client losses over recent years, as clients have looked to reshape their operating models and supplier relationships. But BBH has stood firm, unwilling to engage in a zero-sum price war with its larger competitors. It even declined to bid for the BlackRock ETF book, citing the unique structure of the proposed deal – possibly a polite way of saying that it was never going to make money out of the transaction, whatever the value of the assets.
The market needs thoughtful providers like BBH, and there aren’t enough of them. Inevitably, the culture of innovation and creativity – as well as fierce loyalty to the original partners and their principles – would be lost were BBH to be swallowed up by one of the mega-players. It almost never works (e.g. The Bank of New York buying Irving Trust in 1988), despite the best intentions of all involved.
Many years ago, a journalist referred to global custodians as dinosaurs. BBH reacted by handing out toy dinosaurs to visitors to its offices (I have mine on my desk to this day). But BBH is no dinosaur: ever since Stokley Towles, a partner and arguably the father of global custody, told a U.S. mutual fund manager in the seventies that “of course” the bank could handle offshore custody, without knowing precisely how to get it done, it has been an innovator and leader. The buyside needs providers like BBH, whilst it continues to keep its competitors honest and on their toes. An independent BBH is an asset to the whole market – and, if you don’t understand that, you’re probably in the wrong business.
P.S. Refresh your memory about what I said about BBH in 2018 here