In just a few weeks, Boston will play host to the global financial conference Sibos for the third time, and conference-goers will get a taste of a city that carries a reputation larger than its size would indicate.
Since the founding years of America, Boston has always been an important city, and today, it continues to flourish in areas such as education, technology and financial services.
For conference-goers returning to the city following previous Sibos visits in 1994 and 2007, they will first recognize that the convention center’s neighborhood, formally known as the South Boston Waterfront and more commonly called the Seaport District, has undergone a facelift, with a development boom spawning trendy restaurants and luxury apartments. More recently, the area has been dubbed the Innovation District, an initiative from the city government that aims “to transform 1000 acres of the South Boston waterfront into an urban environment that fosters innovation, collaboration, and entrepreneurship.”
Recently, Boston-based State Street opened a new office in the Channel Center section of the district. The bank is in the process of consolidating four other Boston offices into this new location, which looks more like the home of a tech startup than a financial institution founded in 1792.
And like the city itself, Sibos has also been transforming.
“Sibos has been very much about the settlement aspects, the sub-custodian aspects, and I think they’re trying to widen even further than their existing appeal, moving very much into the funds space,” says Marina Lewin, global head of sales and relationship management for Asset Servicing and Alternative Investment Services at BNY Mellon. “Choosing Boston is acknowledgement of the leadership of the city in the funds space.”
In fact, Boston is home to what’s regarded as the first open-end mutual fund, the Massachusetts Investors Trust, founded in 1924. The fund has used State Street as custodian and still exists today, with the management company evolving into what is now a large asset manager, MFS Investment Management. In addition to MFS, a number of prolific asset management firms come from Boston, such as Eaton Vance, Fidelity and Putnam Investments.
Bob Pozen, a former chairman of MFS and now a senior lecturer of business administration at Harvard Business School, says that Boston’s asset management industry has thrived partly because large, diversified banks have often struggled with their asset management businesses and divested some of them following the financial crisis.
“These trends have worked very much in favor of Boston because Boston has a relatively small number of broad, diversified financial institutions and has a very high number of committed asset managers, and I think committed asset managers have won out,” he says.
Of course, other cities like New York have committed asset managers, but Pozen notes that there are advantages to being in Boston, separated from Wall Street.
“I think it’s good to be close to New York but not in New York because you don’t get totally immersed by the latest trends and all the minute-to-minute stuff,” he says. “The asset management industry is not a daily business and is not daily traders; it’s got a longer timeframe, and so getting all the information and being able to see everybody, but taking a step back, I think is very useful.”
Supporting these asset managers, a large asset servicing industry has grown in the city too, with custodians like State Street and Brown Brothers Harriman establishing a large footprint. For BNY Mellon, even though the bank is headquartered in New York, it has a legacy in the city, as Mellon Financial acquired The Boston Safe Deposit & Trust Company and The Boston Company Asset Management in 1993. Today, Boston remains important to the custodian, as the city’s asset management business continues to thrive.
“We see Boston as critical because of the expertise of the people and because of the location of our clients to us in this area,” says Lewin.
In addition to these long-standing institutions operating in Boston, newer firms have been cropping up, such as securities lending agent eSecLending, which was founded in 2000 and established its headquarters in the city the following year. Peter Economou, chief risk officer and head of corporate strategy at eSecLending, explains that in addition to the management team all being born and bred in the New England area, the city is home to multiple agent lenders, so they see a higher volume of visits from beneficial owners that might see multiple lending agents during the same trip.
Another large reason for Boston’s sophisticated financial industry lies in the fact that the Greater Boston area is home to the world’s largest concentration of colleges and universities, according to Massachusetts’ Office of Housing and Economic Development.
“The reasons for the success of Boston as a financial center may emanate not just from its historical trading importance with Great Britain but also from the prevalence of major educational establishments such as Harvard and MIT,” says Tim Smith, executive vice president of SunGard’s Astec Analytics, a securities finance data provider. “Just controlling the endowment funds of these two institutions alone is a major enterprise as well as the many hedge funds, venture capital and private wealth funds spawned by the alumni that have decided that Boston is more civilized than anywhere else and why not set up shop there.”
“Boston is the college town of America,” adds Lewin. “Boston itself has a tremendous workforce, that’s well-trained, well-educated. On our sales team here, we benefit from a steady inflow of well-trained talent, whether it’s RFP (request for proposal) writers, presentation experts, or other roles, that come out of Boston schools or from other local financial institutions. At all levels, we think it’s a terrific job market for us to grow and to retain our talent.”
These strong universities also develop a workforce particularly relevant to the asset management industry.
“The asset management industry is different than the sell side,” says Pozen. “The buy side is much more analytic and has to be, I believe, much more [focused on] getting to the right answer, getting to the right numbers, rather than salesmanship. So intellectual capital is the key, and when you look at the intellectual capital in Boston, it’s very big.”
“There’s no better talent base in asset management in the world than in the city of Boston,” adds Doug Morgan, president, Institutional Asset Management, SunGard.
Even as large firms move their operations out of Boston and into lower-cost centers, the quality of the talent pool will likely keep the city going.
“It is fair to say that firms have definitely changed their operating model and pursued nearshore strategies that have led to the relocation of people and positions to lower-cost centers, but that said, I think it’s safe to say that we’re bullish on Boston as a market,” says Morgan.
“Much of the intellectual capital of our asset management business is here in Boston, and that will continue,” says BNY Mellon’s Lewin.
Plus, banks such as BNY Mellon and State Street have been able to utilize nearby towns for their operations.
“The good news about Boston is if you bring your operations out to Quincy or Marlborough or Springfield, [for example], you don’t have to pay very high costs,” says Pozen. “So you can be close to Boston but be in a much more low-cost environment, and that’s what you need in a lot of those back offices.”
In addition to asset servicers, a number of supporting institutions have also been established in the area.
“You certainly see a healthy vendor presence in Boston, in terms of the suppliers, whether it’s consulting or software vendors like ourselves who support those institutions,” says Jennifer Hanes, chief operating officer of SunGard’s IntelliMatch, a reconciliations solution. “So that is actually really beneficial to a company that’s located here that they’ve got a plethora of resources at they’re disposal.”
With these resources in place, Boston looks to continue to grow in the asset management and technology spaces.
“Boston’s present and probably its future is more front-office or idea oriented,” says SunGard’s Morgan.
Consistent with Boston’s status, this year’s Sibos will host the inaugural Investment Manager Forum, a one-day stream looking at issues affecting the buy side, including regulation, outsourcing and innovation.
And if Boston’s future really is more idea oriented, the timing is right for Sibos, and the conference will be fertile ground for sparking new ideas.