Broadridge Continues to Partner with the Hedge Fund Industry

Broadening and deepening buy side presence

Originally published in the August 2017 issue

Broadridge continues to build out its buy side offensive, encompassing the entirety of the buy side well beyond just hedge funds. “Many buy side firms are unfamiliar with the depth of Broadridge’s asset management capabilities, so there is a great opportunity for us to expand this business,” says Eric Bernstein, who joined in May 2017 as President of Broadridge asset management solutions. He expects Broadridge could make real strides in market share. “Leveraging our data, technology and people, we feel that the ingredients are there for us to significantly enhance our market share and continue to move upmarket to serve the largest firms globally.”

Indeed, Bernstein arrived on the job just a week after Broadridge announced the on-boarding of Philippe Jabre’s Geneva-headquartered firm, which has been profiled in The Hedge Fund Journal. Jabre Capital Partners is one of Switzerland’s largest hedge fund managers – ranking in The Hedge Fund Journal’s ‘Europe 50’ as one ofthe most sizeable hedge funds in Europe – and runs liquid alternatives UCITS funds, as well as offshore vehicles. Another recent client win, announced in August 2017, was the global, multi-billion, multi-strategy hedge fund, Whitebox Advisors. Broadridge’s platform will provide a comprehensive, fully hosted and integrated platform of trading, portfolio management, reference data, reconciliation and data warehouse solutions to manage Whitebox’s front, middle and back office operations. Broadridge will also host Advent Geneva and integrate Geneva with Broadridge’s data warehouse, HTML 5-based reporting solution and order, portfolio and risk management systems, which are based on the foundation of Broadridge’s central security master and pricing solutions.

Broadridge naturally appreciates the media coverage when clients who want this exposure go live, but normally most client identities are not disclosed. The firm remains open minded about taking on clients of various asset sizes, including start-ups, which usually run at least $50 million nowadays, though firms as small as $5-10 million are often considered. Broadridge’s buy-side client base numbers over 200 and includes both asset managers and asset servicers. Some 60% of the client base are now hedge funds, with others including asset managers, fund administrators and brokers. Clients strategy types span multi-strategy, across asset classes, including long only, long/short equity, foreign exchange, listed and unlisted derivatives, and commodities.

In Europe, Broadridge’s largest country markets are the key financial centres in the UK and Switzerland, with client types including long only, hedge, venture capital and private equity. Bernstein also expects to make some headway into the French market, which he is familiar with, and Broadridge has a significant presence in Asia Pacific, which includes Australia, Hong Kong, Korea and Japan. Broadridge opened a Singapore office in 2010. “We have big institutional accounts in the region, and they are not always pure hedge funds,” Bernstein reveals. China Post Global, for instance, was one publicly disclosed client win in 2016.

Broadridge’s targeted ramp-up may happen faster than some observers expect because the culture of the company is entrepreneurial. “Asset management solutions is like a start-up within a big company, leveraging a whole umbrella of managed services,” Bernstein explains. If Broadridge is raring to go, so too are some potential clients. Asset managers are far less bureaucratic than banks and discussions can move much faster. Bernstein knows far too well how long it can take to sell to a bank, but is delighted to find that Broadridge, in some instances, can sign up new buy-side clients within a month or two.

Accelerating client on-boarding  
After the sale is made, set up also needs to be faster at hedge funds. “One or two weeks is a long time for hedge fund set up while one or two months is normal for banks,” Bernstein observes. “Broadridge offers a turnkey, fast start, plug-and-play hosted solution. Data, FIX connectivity and integration can take weeks,” he explains. That said, the reality is that “the migration process is usually phased, as a big bang is very hard to do even when clients have bought the entire bundle of modules. We decommission as we go along, building pipes, and going back and forth with discovery analysis to work out deeper requirements.” Internal communication and coordination within Broadridge is giving Bernstein sight of the big picture so that all units can spring into action when a new client is won. On-boarding can become even smoother as the team learn from each new client. Bernstein has identified significant economies of scale in the business. “If two client specifications have an 80% overlap we do not need to start from ground zero with the second one,”he points out. Common and shared costs mean that the managed services cost base need not rise linearly in response to client additions.

But this is not a fixed cost business model. Both on-boarding and ongoing servicing demand human attention and the firm is hiring senior people with extensive buy side experience. “When Broadridge started, staff were often hired from the sell side or hedge funds, but now more are being taken on from the buy side, including traditional asset managers, where we have an extensive presence in US mutual funds. We are hiring people such as product managers, implementation and account managers from the buy side. This is opening some doors that we did not know existed,” says Bernstein. Broadridge are adding to the existing foundation of 24/7 support, including from staff in call centres in India.

The appointment of Bernstein typifies the seasoned hires being made at Broadridge. Joining Broadridge was not a particularly difficult decision for him, rather a natural career progression. In the relatively small world of buy side software and service provision, he has been familiar with the team and the firm’s core technology and product for much of his 25 years’ experience in finance. Having started in capital markets and market-making, Bernstein has spent the past 17 years working for a series of entrepreneurial French fintech firms: Linedata, Sophis and eFront. ‘Entrepreneurial’ and ‘French’ is not an oxymoron for Bernstein (indeed the etymology of the word entrepreneur is French). Having run product at Linedata, and product plus other responsibilities at eFront, Bernstein is conversant with the technology landscape and has known Broadridge’s former President of Investment Management, Reference Data and Risk Solutions, Bennett Egeth (who we interviewed in 2016 for our inaugural coverage piece, ‘Broadridge’s Buy Side Gambit: The Evolving Buy Side Operating Model’) for 13 years; and President of Global Technology and Operations, Charlie Marchesani, for 10 years. “This was the perfect job and a natural opportunity for me,” Bernstein says.

From best of breed to best of suite?
Broadridge’s solution is well attuned to the investment management environment in 2017 where fee pressures and cost pressures are compelling consolidation and re-examination of business and operating models. Broadridge is intended to be lower cost than the widespread practice of buying a package of up to ten best of breed technology solutions from separate companies. Broadridge’s modular offering allows sales and marketing teams to target their efforts, pinpointing precise client needs. “We do not try and sell them everything as they may not buy the whole package. Some clients may prefer to leverage Broadridge to provide the whole suite of products, while others will pick and choose point solutions, such as reconciliation, data aggregation or data dissemination.” A typical bundle is Security Master, Price Master and Portfolio Master (which includes an Order Management System) but some will take on additional analytics such as Credit Master. Some clients may only opt for the software and implementation, while others go for the full-service solution of managed service provision.

“We should always be lower cost than separate packages as bundling four or five products together is usually less than the sum of the parts – even before the internal staff and other overheads of integration and connectivity are considered,” Bernstein points out. Thus, he argues that the paradigm has “shifted from best of breed to best of suite”. The pricing model is based on a blend of assets and users, with both defined in bands.

Data governance
But the offering is not just about economising on license costs and holistic costs of ownership. “It is not necessarily about matching prices but more about adding value. We know our competitors are looking to scale their businesses up as well, but none of them can bolt on a Security Master or Portfolio Master system to an Order Management System in the way we can,” claims Bernstein.

The proposition is also about lessening the burden on internal client resources, including staff. For instance, harmonising inputs from multiple data sources can release resources that would otherwise be spent on data cleaning and streamlining. “We can easily integrate data from Bloomberg, Factset, IDC and so on. This frees up more client time for marketing, or research,” Bernstein points out.

Broadridge is engaging the industry in a dialogue around data. Among many white papers Broadridge has authored is Hedge Funds and Their Data: Investing in Operational Excellence And Attracting New Capital. Broadridge recently held a webinar hosted by Vice President of Strategy, Julia He, with Joseph Sommer, Senior Manager of Data and Analytics at EY and Arnold Wachs, Principal of Cutter Associates. This open discussion revealed some startling findings about the challenges firms face in managing data analytics and governance for regulatory reporting and other purposes. The reality is that many firms do not appear to have anything approaching an effective data management policy. Some 80% of firms surveyed are still using excel spreadsheets for data gathering and storage, and are using manual inputs at multiple stages of the process. This can entail 2,000 or more physical data fields and multiple, sometimes incompatible, security masters. The bottom line takeaways from the webinar were that many firms have huge untapped potential for introducing automation and data governance policies to gather, integrate and aggregate data, trace its lineage, check it and clean it more efficiently. Such measures can improve accuracy and accountability as well as saving on people hours.

Ongoing enhancements
The Broadridge suite is rapidly evolving with new releases and numerous bolt on acquisitions. New releases come out several times a year. For instance, Portfolio Master is now on its twelfth version and Broadridge may start broadcasting webcasts to alert clients to the benefits of upgrading to the latest ‘machs’. Ongoingly, Broadridge’s preference is to enhance existing packages with new features and functionality, rather than bring out new modules, so that all clients can benefit from improvements.

Bolt on acquisitions have been in segments including securities financing, collateral management, investment accounting and reconciliations. For instance, 4sight securities helps with financing and collateral management; ledger accounting system QED was bought a year ago while Bonaire deals with expense reporting.

“The reconciliation product is opening up many opportunities, especially in the managed services space,” Bernstein is keen to say.

Thought leadership
Broadridge is reaching out to the industry with white papers, webinars and newsletters that address new challenges such as MIFID regulations. Sometimes, clients will collaborate with Broadridge in developing such thought leadership pieces and there is some spontaneity involved. Broadridge is open to suggestions and reverse enquiries. For instance, a webcast six months ago helped lead to a white paper more recently. Broadridge emails a list of 25,000 detailing its webcasts, focusing on topics such as MiFID 2 or two-day settlement periods. “We get experts on the phone and show solutions that are valuable,” says Bernstein. A client newsletter touched on issues around message automation in MiFID reporting, where Broadridge expects more automation.