With many nontraditional firms entering the ETF space, firms like mutual fund issuers are finding out that managing ETFs in the capital markets isn’t what they’re used to doing. Brown Brothers Harriman uses its capital markets expertise in that space to assist.
“Asset managers traditionally think about managing their mutual funds through a transfer agent, so the fact that ETFs trade on the exchange is very different. We spend time with clients on the process and market differences, and how to create the discipline and infrastructure that support a fund that’s trading on the exchange,” he noted.
Since Brown Brothers Harriman has been in the ETF space for 13 years, it’s built up networks in the ETF ecosystem, which McNinch says is part of its strategy to service clients.
“We don’t have the answer to every question an ETF sponsor has, but we have the relationships to get them the answers, and that’s critical,” he said. “If a client is struggling with a very technical trading question, we can turn to one of our market makers or authorized participants. That access can be the difference between a successful launch and a less successful one.”
Brown Brothers Harriman has several technological applications for ETFs to support various operational functions, McNinch says.
“A lot of our tools are unique in the marketplace. They’re built specifically to address the unique product attributes of the ETF that really don’t exist within core mutual funds,” he added. “We’re not retrofitting mutual fund technology to ETFs.”
There are a variety of applications for clients who want access to online tools to help manage and oversee their ETF business, McNinch notes. Within ETF Connect, Brown Brothers Harriman created ETF Star, which is a portfolio composition file/basket creation tool that’s integrated with the firm’s accounting platform, Star. The portfolio composition file is based on client-specific parameters and rules. Star is the fund accounting system the firm uses to strike net asset values for mutual funds as well as ETFs.
Authorized participants and ETF clients have access to a workflow automation tool, AP Exchange (APEX), a web interface platform. APEX allows authorized participants to either create or redeem into the ETF, and if clients or portfolio managers want to approve every order, APEX creates an alert to the client that a new order came in. Within the ETF order view basket, clients can see real-time status updates on the basket trades.
Brown Brothers Harriman doesn’t just provide support services to ETFs in the U.S.; it has a similar focus in European markets, where it supports unit investment trust ETFs. The firm also recently received a trustee license in Hong Kong to support Hong Kong-domiciled products, including ETFs, and it’s working on building up that operating model.
“A lot of clients want a global provider,” said McNinch. “They can work with us, starting here in the U.S., and have visions to take products and distribute around the globe. We can help them do that.”