Head of Securities Lending, Brown Brothers Harriman ● Boston ●
In fact, Chris Donovan had less cause for anxiety than most agent lenders in the weeks after Lehman Brothers collapsed, for she has preached the virtues of cutting counterparty and collateral reinvestment risk through intrinsic value lending for a decade and a half. But she has been in the securities lending business even longer than that, getting her first taste of it at State Street in 1988, having joined the custody arm of the bank straight out of Stonehill College in Massachusetts two years earlier.
Ralph Vitale, who then ran the securities lending division at State Street, had chosen Donovan to develop a non-dollar equity lending business. The job took her to London, Sydney and Tokyo, where she built lending desks on the back of the local custody franchises. “In 1993 I went in to Ralph’s office and said, ‘Ralph, I think there is a better way for us to lend securities on behalf of our clients,'” she says.
What Donovan saw on the international side of the equity lending business was an opportunity to make more money for clients at lower risk, by lending specials only. The higher value would produce more revenue, while the lower balances would reduce the counterparty and cash collateral reinvestment risks run by beneficial owners lending large volumes of general collateral.
“Ralph said, ‘That is a nice idea, but we have a large fixed-income book and a large US equity book, and we have custody clients who consider this annuity income, so we need to look at the program holistically,'” recalls Donovan. “Understandably, it is difficult to lend a large fixed-income book by using a lower-volume strategy. However, I felt strongly about the benefit we could provide to clients and so it was at that point in time that I left, along with a number of my colleagues, to start Boston Global Advisors.”
The goal of Boston Global Advisors (BGA), which was backed by hedge fund managers Paloma Partners, was to do what Ralph Vitale felt State Street could not: lend a limited range of high value securities owned by a small number of beneficial owners to a small number of proprietary trading desks, so generating more revenue at lower risk.
The courage and vision that it took to set up BGA should not be underestimated: non-custodial lending was a much more daring idea in 1993 than it is today. The gamble paid off so handsomely that just three years later, in August 1996, Donovan and her colleagues were able to sell the business to Goldman Sachs.
One of the biggest clients of BGA was BBH, which did not open a securities lending business of its own until Donovan joined the bank in 1999, and whose partners’ aversion to excessive risk made intrinsic value lending through BGA a natural choice. Moving to BBH when the bank decided to get into the business directly was a natural move for Donovan. “It was a perfect philosophical fit,” she says.
It is a measure of the loyalty Chris Donovan inspires that Bonnie Hammerl and Mark Payson, two former colleagues from BGA, are now working with her again at BBH (another BGA alumnus, Bill Conley, is now running the entire equity finance business at Goldman Sachs).
“We do smile a bit when we read about the new trends towards non-custody and intrinsic value lending,” laughs Donovan. “We have been doing it since 1993.”