The founders write that the members of the Dashboard Operators Coalition (DOC) will collaborate with each other, with government, and with regulators, to support the launch of highly effective dashboards to consumers as early as possible.

Dashboards are new to the UK, the founders say, but there is strong international evidence demonstrating the key ingredient for successful delivery is deep collaboration.  International learnings include:

commercial dashboards are popular, representing 95 per cent of all dashboards usage, and varied consumer feedback on dashboards is essential, both during pre-launch usability testing, and on an ongoing basis to inform post-launch enhancements.

Working closely with government and regulators, the Dashboard Operators Coalition (DOC) will:

support the safe, secure and successful early launch of multiple pensions dashboards

help ensure dashboards meet different users’ needs effectively at launch, and

provide rich consumer feedback to inform future iterative dashboards enhancements.

Together, the DOC will help address the numerous remaining challenges around testing, launching and iterating highly effective dashboards for consumers.

Some critical topics haven’t yet had detailed attention, the founders say, adding that collaboration on these points will prove very beneficial for all parties, but most importantly for a good consumer experience of dashboards, such as:

Pre-Connection Audit (PCA) scope: agreeing the optimal scope of statutory PCAs so dashboards’ adherence to PDP Standards delivers a consistent consumer experience

Identity Service integration: optimising dashboards’ integration with the central Identity and Consent Services for a seamless, yet secure, consumer user journey

DAP readiness assessment: supporting the Secretary of State’s assessment to make the Dashboards Available Point (DAP) launch notice as early as possible for consumers

Post-launch enhancements: providing rich and varied consumer feedback to inform iterative enhancements to dashboards, as has happened with European dashboards.

The DOC is being set up now as, earlier in March, new HM Treasury enabling legislation came into force which made “Operating a pensions dashboard service” a brand new FCA-regulated activity.

The DOC is initially being instigated by four firms, but all other organisations are welcome to join the Coalition as they commit to offering their own pensions dashboards.

Organisations interested in finding out more should contact info@pdoc.org.uk

Who’s behind the Coalition?

Independent Dashboards Consultant Richard Smith is leading this initiative.  Richard Smith led the development of the PDP Data Standards for dashboards in 2019/20, and is currently actively supporting the PLSA, PASA and Moneyhub on dashboards.  Richard also did an independent research tour of 5 continental dashboards teams in 2023 who all said: “Collaboration is key!”.

DOC Chair, Richard Smith, says:

“My research tour of five continental pensions dashboards teams in 2023 confirmed to me that launching dashboards is a highly challenging endeavour.  But the key to getting them done is very close collaboration, both across the industry, and also between industry and government.

“On the supply of data to dashboards, the Pensions Administration Standards Association (PASA) is working very closely with the government’s Pensions Dashboards Programme (PDP).  Now, for the ‘front-end’ consumer experience of dashboards themselves, there needs to be an equivalent industry coalition, where dashboard operators can come together to share their questions, ideas and feedback to develop and maintain best practice for operating dashboards.

“We know from research reports that consumers desperately want to use commercial pensions dashboards, on apps they already use and trust (such as their banking or pension app).  And they want to do this as soon as possible.  So I’m very grateful to the first four firms (Just Group, Legal & General, Moneyhub and Standard Life, part of Phoenix Group) for taking the lead with this new Coalition.  I hope other firms will see the benefits of joining the Coalition too, as they decide to offer their own dashboards.”

Just Group Marketing and Distribution Director, and HUB Group CEO, David Cooper says: “Just Group sees pensions dashboards as a critical building block to help consumers engage with their retirement savings. Through the Dashboard Operators Coalition we aim to accelerate learnings and insights capture across the industry so that commercial dashboards meet customer needs and fulfil their incredible potential.”

Legal & General Managing Director of Workplace Katharine Photiou says: “With more than five million workplace pension members, Legal & General has long maintained that the introduction of pensions dashboards is the key to better retirement outcomes.  As one of the first providers to test the technology and the processes needed to establish the foundations of a dashboards ecosystem, we have remained committed to dashboards’ potential to help people stay connected with their pots and take stock of their overall savings.

“As an industry, we need to come together to make sure that the introduction of dashboards really shifts the dial on how people plan and prepare for retirement.  We will put the full weight of our experience behind the efforts of the DOC to help make pensions dashboards a success from day one.”

Money & Pensions Service (MaPS) Pensions Dashboards Programme (PDP) Principal Chris Curry, says: “The theme running throughout the delivery of pensions dashboards is that we’ll make a success of them by working together.  The Pensions Dashboards Programme welcomes initiatives that foster greater collaboration between industry, regulators and government.  The development of dashboards will be a crucial step to giving people the tools to enhance engagement with their pensions, and we’ll continue to work closely with all organisations looking to become dashboard providers.”

Moneyhub Chief Executive Officer Sam Seaton says: “International evidence strongly shows that consumers prefer to see all their pensions in a familiar, trusted app they already use, such as a banking, pension, or money management app.

“Through Open Finance, these apps also enable connections to users’ other finances, showing consumers the broader context of their financial position as it develops over their lifetime.

“So, as an industry, we urgently need to collaborate to launch commercial pensions dashboards for consumers as soon as possible.  Working with the FCA and PDP, the Dashboard Operators Coalition will be instrumental in bringing an open and collaborative environment to commercial pensions dashboards, and in doing so, help millions of consumers achieve a healthier financial future.”

Standard Life, part of Phoenix Group, Workplace Managing Director Gail Izat says: “I’m delighted that we will be a founding member of the Dashboard Operators Coalition.  We are committed to providing a Pensions Dashboard for our customers as soon as possible and cooperation amongst industry to solve some of the remaining issues should help dashboards launch.  Pensions Dashboards represent a once in a generation chance to move the dial on pensions engagement, so it is crucial that government and industry get it right.”

The firm also notes that demand is emerging from private wealth clients as they seek specialised investment knowledge and skill. 

“While the OCIO market experienced a 9 per cent decline in assets under management from the year-end 2021 total, interest in OCIO remains strong thanks to its various benefits to clients—namely the ability to access higher-quality investments than those otherwise available to an asset owner on their own, the lower cost of OCIO compared to an in-house investment team, and the ability to implement changes to the investment portfolio more quickly than an investment committee. Private wealth firms seeking a more institutional-quality experience are showing increased interest and adoption of the model.” 

Cerulli writes that although private wealth is the smallest OCIO client segment, it is projected to grow 16 per cent annually through the end of 2027, the most among all OCIO client types. “Given that the private wealth market is growing faster than the institutional market, the rate of projected OCIO adoption is not a surprise,” says Laura Levesque, director. 

Alternative investment allocations held by many private wealth firms is one of the strongest factors driving demand. “Wealthier clients are consistently seeking institutional-quality investment opportunities as well as the extensive due diligence, special knowledge, and skill that OCIOs offers,” says Levesque. “While differences between a truly institutional client and a private wealth client (e.g., tax profiles) mean some adjustments will need to be made to service these clients, the future growth opportunity is very attractive to many OCIO providers,” she concludes.  

Last month BAE Systems appointed Goldman Sachs as OCIO for its two defined benefit (DB) pension funds worth GBP23 billion, marking the biggest ever deal of this kind, and are demonstrable of an overall move by pension behemoths into the market. 

Toby Goodworth, Managing Director, Head of Liquid Markets at Bfinance, says: “The OCIO model, which historically been favoured by small and medium-sized organisations with very limited internal resources, is now attracting larger investors.”

He continues: “The level of complexity of mandates has increased over time – and it’s not just investment complexity, we are seeing operational complexity, regulatory complexity as well as ESG reporting requirements. As soon as you move towards more complex portfolios, you need to increase the size of the investment team and add other resources. For some investors that that’s just not desirable or feasible.”

Goodworth adds that there is also a trend to move away from internal investment teams, which is demonstrated by the transfer of internal pension desks to the OCIO provider in several cases including those at Centrica and BAE systems.

Chetan Ghosh, who was the CIO at the Centrica Pension Schemes before they outsourced to Schroders Solutions and is now the provider’s Head of Group Pensions and Investments, says: “Since onboarding, Centrica has been able to benefit from the vast intellectual investment resources that exist at a fund manager, for example for training, direct practitioner insight, and strengthened management information/risk oversight for the portfolio.”

Similarly, Duncan Willsher, a professional trustee at Vidett and Chair of the GBP 830 million Northumbrian Water Pension Scheme which appointed Cardano as OCIO in August, says: “We wanted an OCIO who could offer a sophisticated strategy, flexible implementation and a collaborative approach to working with the scheme’s stakeholders and other advisors.”

But while appointing an OCIO may relieve some of the burden facing asset owners with complex investment strategies, Goodworth says It can be challenging to establish suitable governance arrangements given the shared responsibility for elements of strategy and the hybrid front/ mid/back-office service combination. 

And given the potential conflict of interest in cases where the OCIO offers asset management or investment consulting services, asset owners must be particularly careful in crafting the mandate.

Goodworth says: “Manager research experience in this sector indicates that service-level independence can be achieved irrespective of the size and complexity of the organisation. Yet investors should handle the subject with care and keep an eye on direct or indirect linkages with either internal products or certain external asset managers. There may be some positive aspects to using internal products, such as potential fee savings, but there needs to be a very clear division of services, teams, management and incentivisation.”

The new FX Swap Workflow solution aims to allow mutual clients of Tradeweb and FXall to buy or sell an EM bond via the Request-for-Quote (RFQ) or Request-for-Market (RFM) protocols on Tradeweb and then seamlessly hedge the local currency risk by executing an FX swap trade via direct connectivity to FXall. FX Swap clients will able to request prices from multiple dealers simultaneously on both legs of the transaction, and also to benefit from existing straight-through-processing (STP) channels, leading to greater automation and time-saving efficiencies. 

“Facilitating the connection of our EM bond marketplace with FXall’s liquidity pool provides buy-side traders with access to enhanced and efficient local currency EM trading workflows,” says Enrico Bruni, Head of Europe and Asia Business, Tradeweb. “Clients trading EM products can now take advantage of markets that are increasingly interlinked, while also benefitting from seamless execution and STP. This latest innovation underpins our commitment to creating solutions that cater to the needs of our EM clients, and help them move risk more efficiently.” 

“We are excited to provide our customers with an enhanced multi-asset integrated workflow, replacing what used to be either a voice-based process or a sequence of workflows split between different trading desks,” says Neill Penney, Group Head of FX, LSEG. “Greater collaboration between LSEG and Tradeweb has enabled us to offer our mutual clients an effective solution in FX Swap Workflow, with all the inherent advantages of electronic trading and our world-class liquidity pools.” 

Morgan Stanley has acted as the liquidity provider for the first transaction using Tradeweb’s FX Swap Workflow solution. Commenting on the transaction, Volkan Dikmen, Managing Director at Morgan Stanley, says: “We are supportive of new initiatives that help markets evolve and become more streamlined, so we are proud to provide liquidity for the first-ever trade bringing together EM bond and FX swap markets.” 

Tradeweb aims to offer global EM cross-product execution with comprehensive solutions across both bond and derivatives markets. Product scope includes EM IRS, CNY IRS via Swap Connect, hard and local currency bonds, portfolio trading for EM hard currency, EM credit derivatives, and CNY cash bonds via Bond Connect and CIBM Direct. More than 50 liquidity providers are currently supporting hard currency Asia, CEEMEA and LATAM bonds, many of which are also sending pre-trade streams and axes to facilitate smart dealer selection. Clients are able to trade EM bonds across 21 local currencies, with 11 more in the pipeline. 

The firm writes that the solution streamlines and automates the process for gathering quantitative and qualitative data needed to support clients’ best execution analysis and reporting. Firms can utilise this technology to help meet global regulatory requirements for SEC Rules 110-1102, FINRA rule 5310, MSRB Rule G-18, and MiFID II compliance, the firm explains.

Best Execution is the latest module added to the firm’s ComplianceAlpha integrated RegTech platform for financial services firms. The offering is available as Software-as-a-Service (SaaS), that complements and integrates with ComplianceAlpha’s Employee Compliance and Market Abuse Surveillance solutions, as well as with third-party systems. This solution helps global firms facilitate the exchange of critical data and reduce the cost and time to complete required regulatory reports, ACA writes.

“The fiduciary duty of investment managers and advisers includes seeking the best execution when placing orders for clients,” says Patrick Conroy, Partner at ACA. “Regulators expect firms to demonstrate that they are consistently taking all sufficient steps to obtain the best possible results for their clients, including evaluating the execution performance of transactions. Our new ComplianceAlpha Best Execution solution helps clients meet these obligations by evaluating not only the cost of services received from all their financial counterparties and service providers, but also the quality of those services.”

“ACA’s Best Execution solution outlines a specific set of recommended tasks for conducting a compliant best execution report. In addition to performing a transaction cost analysis, it allows the firm to rank brokers on responsiveness, breadth of services, and other factors,” says Jordan Schwartz, Partner at ACA. “These qualitative capabilities are a differentiator for ACA enabling clients to quickly identify potential conflicts of interest and flag related records for investigation. Integration with other ComplianceAlpha modules, like Market Abuse Surveillance, facilitates the exchange of data and implementation.”

The best execution regulatory framework builds on existing global best execution regulations, including Markets in Financial Instruments Directive II (MiFID II), which states that investment firms must take all sufficient steps to obtain the best possible result for their clients when executing a client order, providing full disclosure and transparency items including price, transaction costs, speed of execution, likelihood of execution, and trading venue selection.

Best Execution regulatory requirements:

In December 2022, the SEC proposed Regulation Best Execution, establishing a regulatory framework for brokers, dealers, government securities brokers, government securities dealers, and municipal securities dealers. The regulation includes a need for firms to assess the execution quality of their customer orders at least quarterly, with policies and procedures that describe how they comply with the best interest standard.

While the UK no longer requires regulated firms to prepare certain best execution reports (Relevant Technical Standard (RTS) 27 relating to venues and RTS 28 for firms), the regulatory obligations to seek best execution for clients remain and form a central part of Treating Customers Fairly. The EU also deprioritised supervisory actions on non-publication of RTS 27, though the RTS 28 obligation for EU firms remains in place.

Chief Product Officer at ACA Group, Annie Morris says: “With the launch of ACA’s Best Execution solution, we reaffirm our dedication to meeting our clients’ needs by streamlining the review of trade execution quality and ensuring regulatory compliance. By integrating quantitative and qualitative data, we empower our clients to make informed decisions, evaluate broker performance, and fulfill their fiduciary duty diligently.”

If you can imagine a counterbalance with four weights – North, South, East and West. On the North and South scales, you have Financial Institutions (Tradfi & DeFi) on one side balanced with the Regulator. And on the West and East scales, you have Security balanced with Speed – you will understand start to understand the elements driving custody in the world of digital assets.

Definition of digital asset custody

According to the Alternative Investment Management Association (AIMA), which provides leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes, and sound practice guides – the concept of digital asset custody revolves around the safekeeping of a private key. 

Their membership understands that as private keys are used to store, manage, and transfer digital assets by the owner and help with the decryption of messages and authentication of transactions, they represent a single point of failure in the system.

The trilemma for financial institutions adopting custody of digital assets has always been security, speed, and scalability. One of these is always had to be sacrificed in traditional Custody-enablement solutions. The market for Custody solutions is being driven in response to regulatory and technological changes, market infrastructure developments and enhanced risk awareness. 

The market requires a world-class technology for storing digital assets and a custody solution that solves all three issues of digital asset custody as the financial markets adopt blockchain technologies. The market for Custody solutions is being driven in response to regulatory and technological changes, market infrastructure developments and enhanced risk awareness

Transforming the financial services landscape

Several traditional financial institutions have publicly stated that digital assets are here to stay. One such organisation, BNY Mellon, are committed to supporting its clients as they adapt to this emerging asset class. And even with recent market volatility and discretions of 2022, it seems their level of conviction remains strong. They are keeping their sights on the long-term opportunities and transformative potential of the underlying technology. They like other banks and FI’s are on a journey towards a future where blockchain and related capabilities will transform the financial services landscape.

Michael Demissie, Head of Digital Assets Unit and Advanced Solutions at BNY Mellon commented: “Our research shows 70 per cent of respondents would increase their digital asset activity if services like custody and execution are available from recognised, trusted institutions.”

It is evident that the requirements of organisations vary greatly based on their position in the market. For example, small crypto funds that engage in active yield farming across a wide range of DeFi tokens have vastly different needs compared to multi-billion-dollar hedge funds that prioritize working with qualified custodians. Additionally, larger organizations often require specialized technology solutions for different funds, segments of their portfolio, or different regions.

Ideal attributes of Central Bank Digital Currency

The Digital Dollar Project – a non-profit organisation devoted to catalysing private sector research and exploration of the potential advantages and challenges of a U.S. central bank digital currency (CBDC), or “digital dollar.” – believes that an ideal digital dollar should be private, secure, accessible, and transparent:

·      Private: The CBDC should avoid subjecting users to undue corporate tracking or government surveillance and should allow users the ability to limit having their information shared with financial services providers. 

·      Secure: The CBDC should provide robust security against theft, hacking, illegal seizure, and fraud. As such, it should provide a new way for people to handle money individually, utilizing a system that is both secure against attacks and legally protected.

·      Accessible: The CBDC should improve global dollar users’ access to financial services by increasing efficiency and lowering the cost of transacting. Widespread CBDC usage should spur competition in financial services to produce better services at lower costs. Additionally, accessible, and low-cost digital vaults or wallets could serve as an on-ramp into the financial system for the un-and-under-banked.

·      Transparent: The CBDC system should have transparent operations to enable stakeholders to independently gain assurance about its technical functioning, security, and resistance to impermissible monitoring or other exploitation.

The story of 2022 – hack – innovate – protect – repeat 

According to web3 Studios and Blockstories, 2022 year in review in Crypto and Web3 – the crypto and web3 space has had a rough ride this year: significant declines in the market prices of major cryptocurrencies, a slowdown in the trading volume in many adjacent verticals (DeFi, NFTs), and bankruptcy for some of the space’s leading figures due to failed risk management and the misappropriation of consumer funds. The price of Bitcoin (BTC) reached a two-year low, and the rest of the market saw intense selling activity after the crypto exchange FTX collapsed.

It also showed that the “DeFi hacker” had a successful year in stealing over USD2 billion from multiple protocols (e.g., USD325 million from Wormhole, and USD625 million from Ronin), particularly through vulnerabilities in bridges which are essential for the ecosystem’s development but are still in the early stages of development.

It concluded that even though there has been a slowdown in capital and talent inflow, this in fact has brought the community back together, with people driven by conviction leading the way. The market may be down, but innovators are still working tirelessly on creating the tools and infrastructure to shape the future of crypto and web3.

Quantum computers threaten to break today’s cryptographic algorithms

Accenture Labs reported in their Cryptography in a post-quantum world, the importance of preparing intelligent enterprises for a secure future. This applies to the digital asset world as well as cryptocurrencies. Algorithms using traditional CPU computing have been engineered to be mathematically strong enough to support a 20-year service life requirement. However, recent technology developments have cut this service life expectation in half, causing the US National Institute of Standards and Technology (NIST) to rescind the current public key standard of RSA 2048 released in 2016 and aggressively seek more complex cryptographic algorithms to thwart attackers.

The advent of quantum processors that have the capability to break our current cryptographic primitives is a very real threat on the horizon. Accenture believes quantum processor capability will be able to compromise existing cryptography within the next eight years. Financial institutions have a complex task ahead to identify, evaluate and prioritize the business remediation to protect their data from cryptanalysis breaches and compromise.

Security driving Tokenisation

The Tokenise Europe 2025 initiative members indicated in a recent report that Tokenisation requires all its stakeholders to work together for its success. Legislators and regulators will be key to creating a simple and harmonised legal framework that facilitates innovation and incentivises corporates and citizens to further drive tokenisation while maintaining high standards of security and protection. Central banks and other financial institutions should prepare for the tokenisation of assets and put in place the infrastructure – again prioritising security. And finally, financial institutions will have to explore the possibility of introducing programmable money with a focus on overall benefits to the (token) economy.

Implications to regulation – prioritising Custody in 2023 

In November 2022, GDF convened their annual crypto and digital assets summit, involving a series of panels in which industry leaders exchanged insights on the regulatory landscape and emerging risks and opportunities related to digital assets and the financial services sector.

Some of the panellists contemplated how the “crypto winter” may in fact advance the digital assets agenda by focusing minds on the core capabilities of the technology and reducing the focus on the hype around cryptocurrencies.

Moreover, in the aftermath of such events, there is likely to be a push to implement new digital asset regulations — some of the issues that are likely to be addressed include custody, segregation of client assets, conflicts of interest regarding activities undertaken on behalf of firms versus activities undertaken on behalf of their clients, and insolvency situations.

Holy grail of balancing risk with innovation – real-time cold storage

The GDF annual report in 2022 reported that one of DeFi’s largest risks is around scams and hacks because users often self-manage custody and the value can be transferred automatically and approved only by software and attack vectors can be exploited by hackers. 

They also talk about opportunities presented by the technology as crypto and digital asset technology continues to evolve at an unprecedented rate. While the recent market correction has limited the potential for consumer harm or systemic risk, history has shown that prices may rise again at some point in the future.

Traditionally, the storage and custody of digital assets have been defined as hot wallets, warm wallets and cold storage with security concerns decreasing as you go down the value chain – but the counterbalance to being more secure is the time it takes to access the digital assets and trade with them. 

Hot wallets allow better control and interoperability but are still exposed to the risk of theft or fraud. Cold wallets are more secure, yet as hardware systems, they can malfunction, or users may lose access codes.

Newer innovations are hitting the market with redefinitions and contradictions like custody enablement organisations offering real-time cold storage over an airgap. Several large financial institutions are looking at such solutions to overcome the pitfalls of hot wallets with cold vaults. So, this type of storage is cold and allows for better control and interoperability and is not exposed to the risk of theft or fraud with high levels of security with mechanisms for counteract hardware systems that could malfunction, users, will never lose their access codes.

Custody technology to restore trust, transparency, and integrity

“Not your keys, not your coins” has never been more ubiquitous. We’ve experienced a dramatic blow-up in CeFi-institutions (e.g., 3AC, BlockFi, Voyager Digital, FTX etc.) caused by fraud, recklessness, and lack of transparency among these institutions. Meanwhile, DeFi stayed robust and performed as expected at any time. To restore trust, centralised exchanges are now adopting new standards such as Proof-of-Reserves. Despite these efforts, it is likely that the trend toward self-custody will continue, as people seek to take control of their own assets.  

Custody providers will also have to develop solutions to protect against bad actors

Whether it’s an individual (FTX founder Sam Bankman-Fried), a collusion (BSV Claims against Binance, Bittylicious, Kraken and Shapeshift in 2022), or a hacking cyber group (North Korea’s Lazarus Group masterminded USD100 million Harmony hack) – users need the ability to add policies and permissions to their account, technologically, limiting who can move funds, how frequently, how much per day, which addresses can receive them, etc. That kind of control can limit the amount of damage a bad actor – whether internal or external – could do to your balance sheet of digital assets. 

Another protection mechanism, which is required from a regulatory point of view is to segregate holdings of crypto-assets on the behalf of clients from their own holdings and to ensure that the means of access to crypto-assets of clients are clearly identified as such. They shall ensure that, on the DLT, clients’ crypto-assets are held at separate addresses from those on which their own crypto-assets are held.

Lastly, “Losing your keys, without losing your coins” for the end user means a more forgiving, low-burden, flexible recovery experience is required. The client can be the best crypto investor in the world, but if their crypto gets stolen or lost, they will lose every last bit. So, it’s important to safeguard their crypto, on their behalf, as best you can. 

Summary

2023 will be the year of Custody. The existing market perceptions of trust in digital assets, cryptocurrency and stablecoins can and will be restored with new rules of engagement like segregating trade execution and custody, use of institutional-grade custodial solutions, proof of reserves, auditing and so on. 

Technology – the sentiment in 2023 will be to take the time to build, innovate and sustainably create. Custody providers will partner with secure innovative companies and build an ecosystem for the safekeeping and execution of digital assets. There will also be improved cybersecurity and secure asset transfer to prevent hacks and fraud and much better risk management practices for people, finance, security, and operations. 

Regulation – Custody providers will not expect the regulators worldwide to regulate the blockchain or the technology around it – the emphasis will be more on regulating people.

Governance – There is an inevitable battle between decentralisation vs centralisation. Custody providers will ensure any solution they use in the custody space can cover use cases in both, and there will be potential hybrid solutions, which make the best of both worlds.

Markets – 2021 bull market was driven by mass adoption. Unfortunately, it started to become greedy, and in 2022, the focus switched to leverage, leading it to crash. 2023 will all revolve around protection and security – and stringer foundations for the future upswing

Investment – Over diversification will quickly become diluted. The focus will be on what companies are great at, and sticking to their core competencies, rather than trying to build the entire ecosystem.

These aspects alongside new education supported by innovative companies with something different for the market will make 2023 – the year of Custody.

bfinance writes that it has enjoyed significant growth through recent challenging conditions. Both the pandemic and the subsequent macroeconomic climate have brought new opportunities for the tech-enabled consultancy to assist pension funds, charitable foundations, university endowments, insurers, wealth managers and other clients, the firm says. The firm’s revenues have increased by c.70 per cent since 2018, with particularly strong growth in the Private Markets and Portfolio Solutions divisions.

In addition to growth, the firm writes that the team has also delivered consistently outstanding scores for client satisfaction. The most recent independent assessment of client satisfaction, conducted by third party firm T4 Associates gave the firm an industry-leading Net Promoter Score of 70, reflecting the firm’s ongoing commitment to working as an extension of its clients’ teams.

Diversification and expansion

A broader modular service offering, an increasingly diverse global client base and technological advancement have underpinned the firm’s recent growth and resilience, the firm says.

Founded in 1999, bfinance writes that it first rose to prominence among pension funds and other institutional investors for its innovative approach to Manager Selection. Today the team also provides a broad range of modular services across Portfolio Design, Risk, Monitoring and more. Recent years have brought particular developments in ESG/Impact Advisory, Fee Reviews and Operational Risk, with several new services launched by the rapidly growing Portfolio Solutions division as well as enhancements to pre-existing services.

Within manager selection itself, which remains a core service offering, the firm says that it now enjoys stronger asset class diversification. While traditional asset classes remain a core capability, approximately 44 per cent of client engagements over the past year have focused on private markets, versus 29 per cent in 2018. Investors have been tackling an increasingly broad landscape of illiquid and liquid alternative investment strategies, the firm writes, adding that it has responded to evolving demand with additional resourcing, with the firm’s research team more than doubling in size over the past five years.

The diversification of the firm’s client base–both by geography and by investor type–has also been a major contributor to growth. Although bfinance was founded in Paris and is headquartered in London, 50 per cent of the firm’s revenues now come from engagements for investors outside Europe, compared with 39 per cent in 2018. That shift has been led by growing client bases in North America, the Middle East and Africa, Asia and Australia. In particular, revenues relating to North American clients have increased by more than 300 per cent since 2018 while the number of client engagements in this region has risen by 150 per cent. Overall, bfinance now has clients in 43 countries and company offices in nine countries.

Pension funds have long comprised the largest client group for bfinance, and still represent 41 per cent of the firm’s revenues, but the strongest increase in activity has come from other ‘asset owner’ segments such as insurers, foundations/endowments and wealth managers seeking to build better strategies for their underlying HNW clients. Insurers, for example, now represent 21 per cent of the firm’s activity, up from 14 per cent in 2018. Foundations and Endowments (including Charities) now represent 14 per cent of activity, up from 7 per cent in 2018.

Dedicated consulting focus

The firm writes that the transaction preserves the firm’s position as a pure-play global investment consultant – an ‘increasingly rare breed’, according to Pensions & Investments, following a 15-year period when many firms have consolidated, merged and launched asset management services. These industry trends have provoked concerns around competitiveness and conflicts of interest, not just from investors but also from regulators such as the UK Competition and Markets Authority (CMA), whose 2018 enquiry urged pension fund trustees to promote competition.

bfinance’s ability to remain a standalone investment consultant is largely due to its differentiated model, technological capabilities and fee structures that are designed to minimise the cost burden on investors, the firm says.

David Vafai, Chief Executive Officer at bfinance, says: “We are very excited to be buying back our business via an MBO supported by Beach Point. The continued growth, complexity and transformation of the global asset management market combined with bfinance’s unique competitive positioning offer a tremendous opportunity for us to create even more value for clients in this next phase of our growth. We thank our clients and team for their ongoing support as we continue with our mission of building the only truly independent, global, data and technology powered investment consulting firm.”

Shane Lanigan, Portfolio Manager at Beach Point Capital Management, says: “bfinance embodies the characteristics that we look for in our investments. The company has an established brand with excellent opportunities for growth and a strong management team. The business has proven to be extremely resilient through different economic cycles and we look forward to partnering with the management team to take the business into the next stage of its growth.”

Andrew Ferguson, Partner at Baird Capital, says: “It was a pleasure to partner with bfinance over the last six years, and we wish them well as they enter this next stage of their journey. The team at Baird Capital is deeply proud of the growth we’ve helped them achieve over our investment period, expanding the services provided and significantly increasing overseas revenues across Europe, the Middle East, Australasia and North America. We look forward to cheering them on as they continue to grow the business.”

Many congratulations to our winners.

The firm writes that the recent high demand for UK domestic products has driven the UK funds industry to promote growth and opportunity to firms that offer both substance and rigorous controls following significant upheaval resulting from Brexit and the demands from a continually evolving UK funds landscape. 

Nottingham-based TBFS, is an independent, fully-hosted ACD and fund administration service provider with more than 15 years’ experience in running and administering funds. By coming together with TBFS, Waystone writes that it continues to grow its ACD capabilities in the UK with the addition of a well-regarded, comprehensive and premium service provider to meet the needs of its clients alongside growing market demand. 

As part of Waystone, the TBFS team will focus on the continuity of its existing premium offering, whilst also being able to service its delegated fund managers with a wider pool of resources and expertise. Waystone writes that its wealth of knowledge and resources will provide TBFS with enhanced compliance systems and resources to further support its oversight of current and emerging regulatory issues and developments, with its delegated fund managers gaining access to a multi-jurisdictional offering and an institutional-quality fund services provider. 

Jessica Kirk, CEO of TBFS says: “The agreement with Waystone provides TBFS with a solid foundation for future growth. TBFS operates in a rapidly-changing industry and maintaining a service that remains both relevant and high quality is key. Experienced personnel, compliance and operations are critical to ensuring our service proposition continually evolves with the needs of the market. TBFS and Waystone have a great deal in common in terms of vision and culture. Our clients will continue to be serviced from our Nottingham office and the TBFS management team are excited to join the Waystone UK Senior Management team. We look forward to working together to provide the UK funds industry with a high-quality and personal service proposition.”

Rachel Wheeler, CEO Global Management Company Solutions, says: “The addition of TBFS means we are able to offer our clients a premium, fully serviced ACD offering built on robust foundations, allowing us to meet the growing demand from the UK funds industry looking to launch domestic products. This combination demonstrates our commitment to the UK market and the importance we see for it in the global fund industry. The combined personnel will exceed 70 employees working together to support an exceptional and growing client base.”

In other news this week, Waystone announced the closure of the transaction resulting in KB Associates joining the Waystone Group.  As result of the transaction, Waystone has added 90 new team members and will now support European management company assets exceeding USD300 billion. 

Waystone writes that the agreement makes it the largest UCITS fund management company in Ireland and Europe’s leading management company.

Following the finalisation of the deal, KBA will be joining Waystone as they both relocate to a new Dublin headquarters following Waystone’s agreement to lease 52,000 sq ft of workspace at 35 Shelbourne Road, Dublin 4. 

Waystone will take four floors of the building in order to accommodate its 600-strong Dublin workforce based in the city and is expected to occupy the building at the end of Quarter 4,2022.  

Derek Delaney, Waystone Global CEO, commented on the deal: “KB Associates has been the pre-eminent provider of governance and compliance services in Ireland for almost 20 years. We are delighted that KBA has chosen to join our institutional partnership and we look forward to welcoming 90 talented new colleagues as part of the Waystone family. Our new headquarters at 35 Shelbourne Road is a collaborative and technically advanced space that has the benefit of being flexible enough to adapt to our future needs as we continue to grow.”

Andrew Kehoe, KBA CEO says: “By joining the Waystone Group, which has offices in fifteen locations across the globe, we will be able to offer our international clients a single global solution to meet their complex regulatory and governance requirements.  We are delighted to be joining the Waystone team at our new headquarters in Dublin as 2022 draws to a close.”