Brown Brothers Harriman
AST talks to Jeffrey Holland of Brown Brothers Harriman about how he sees the future of custody after more than two decades in the business
How did your career begin?
I really came into the financial industry through working for what is now called Accenture, in the financial markets section of that group.
I worked with a number of asset management firms and stock exchanges for the first five to six years of my career. During that time I lived in Frankfurt, New York and Boston. When I was in Boston, in the mid-1990s, one of my clients was Brown Brothers. I often joke that Brown Brothers offered me a job just to save money on consulting fees, but I ended up at a firm that I admired, particularly its approach to client partnership and client service, and I started work in the operations area.
We underwent a transformation in the early 1990s, growing significantly in the fund space, particularly in the US. In 1998, I moved to Ireland to take over the Dublin business, as the financial centre there was taking off, and until 2005, I was a council member, and eventually head of, the IFIA (Irish Fund Industry Association). It was through this that I met Sean Pairceir, who we hired to head the Dublin office in 2000. I didn’t leave until 2005, when I moved to London, and shortly afterwards I became a partner of the firm.
In 2007/2008, we reorganised the management of our business to align to our client segments globally, as opposed to our geographical regions, and I became head of our financial institutions business globally. And that’s where I sit today.
Is the distinction being blurred between sub and global custodians?
I think it depends on your perspective. If you’re talking about sub-custody, inbound custody, then I would say absolutely. What we are seeing in light of AIFMD (Alternative Investment Fund Managers Directive), T2S and the like is that there are some banks that are beginning to get into self-clearing, and extending their proprietary network in an effort to create more control over the assets for which they are responsible.
You see CSDs moving up the value chain and global custodians moving down, in the form primarily of both costs and safekeeping of assets. If you look at it the other way in terms of a manufacturer/distributor, I would say that the distinctions are becoming clearer.
Many local and regional banks are starting to recognise that they’re acting more as distributors to local markets for asset management, private banking, investment banking, and retail banking, and the fact is that custody is a component of the service that they offer. They do not need to be a global custodian in their own right, as they can hire those services. I think that people haven’t yet formally made that distinction—they are trying to hold on to the world that was.
What about custody in the regions?
Increasingly, you find that people are looking for more standardisation across the globe, so I don’t think the distinction has increased. There’s still some distinction by market with regards to regulation and tax, but recent times are forcing us to change. The other thing to consider is that markets such as Dublin are very different to New York or Frankfurt, in that Dublin is almost entirely a cross-border funds centre. The US, like France or Germany, is much more of a domestic centre, whereas Dublin and Luxembourg are much more international.
What do you see as the main priority for institutional investors in 2012?
Right now, there are two major factors; safety of assets and price. They’re a bit at odds with each other, and that was one of the themes that came out of NeMa, the recent network management conference in Budapest. There is an increasing awareness, and I finally saw a little more realism, especially among the network managers, that the environment we’re in requires a lot more focus on costs and transparency, and at the same time, people are expecting others to take more responsibility for assets and regulation.
How did you find NeMa?
I go to NeMa primarily to network and see what people are talking about. There was far more realism, transparency and awareness of some of the key issues. John Gubert of Unicredit was moderating a panel in which I participated, and as we went from panelist to panelist describing the current state of the industry, just to be contrary, I said that I was optimistic. We welcome the increased appreciation for transparency. Clients are now more open to having realistic conversations with us about how assets are held. We do not glean over risks in favour of returns. From our perspective, having a realistic dialogue upfront is an advantage. We probably earned less than others during a turbulent time, but we, and our clients, were definitely affected less later.
