The process began in 2011 with the selection of the Bank of New York Mellon Corp.'s asset servicing division as the primary processor out of a field of 14 potential service providers (Pensions & Investments, Oct. 5, 2011). All of the nearly 100 Bridgewater employees who worked in the firm's internal back-office operations agreed to become BNY Mellon employees and to continue to work on the account.
BNY Mellon began managing various fund operations, such as custody, fund accounting and administration for Bridgewater in 1991. BNY Mellon provides all of the middle- and back-office services and is responsible for producing Bridgewater's official books and records.
Bridgewater hired Northern Trust Corp. in 2013 to shadow BNY Mellon, using the same information to perform its own independent processing, including reconciliation and valuation.
Having two independent evaluators gives Bridgewater a strong measure of confidence in the valuation of its portfolio holdings, Ms. Murray said.
“I can look any of our clients in the eye and assure them that their money is safe and their valuations accurate,” she said.
That safety factor is so attractive and essential to asset owners that many will seek and eventually require that external money managers offer the same valuation process, predicted Antonio Riera, a former senior partner and now a senior adviser of The Boston Consulting Group Inc. Larger institutional investors managing assets internally likely will move to a similar platform, he added.
“Post-Madoff, getting valuations from two independent parties is a major breakthrough. There is nothing else like it available in the industry now,” said Mr. Riera.
“The kind of timeliness and security that comes with dual valuations is extremely important for investors and will be required more and more by asset owners. This really is an industry-shaping development,” Mr. Riera said.
Mr. Riera, based in BCG's Boston office, has served on the team that advised Bridgewater from the beginning of its outsourcing project.
The valuation process requires that BNY Mellon and Northern Trust staff review and reconcile valuations with each other intraday, monitored by a Bridgewater quality-control team, Ms. Murray said.
“Any problems, which are usually related to methodology, get caught and resolved right away,” said Peter B. Cherecwich, executive vice president, in Northern Trust's Global Fund Services, Chicago.
Another advantage of the dual-party model is that all of Bridgewater's data is backed up twice in case of systems or process failures, and BNY Mellon and Northern Trust each is responsible for cybersecurity for their own system.
About 95% of Bridgewater's clients, which invest a collective $150 billion in the alternative investment firm's strategies, said in response to an internal survey that they “really like this model, especially the fact that valuations are independently verified by two parties,” Ms. Murray said.
Ms. Murray said the two banks spent “hundreds of millions of dollars building this platform,” adding that Bridgewater's information and processes will be kept separate should other money managers opt to use the same dual-party platform. She added that members of Bridgewater's project team feel good about designing an investment administration platform that “helps everyone.”
Bridgewater declined to comment on the cost of its total outsourcing program.
Samir Pandiri, CEO of asset servicing at BNY Mellon in New York, declined to say what the fees for the Bridgewater program are, but said the fees are on a sliding scale, depending on whether a client uses the dual-valuation system on its entire portfolio or just some parts of it.
Mr. Pandiri compared the low-end of the fee scale to a Honda Pilot, noting that “it's serviceable and gets you where you want to go,” and the high-end of the spectrum to a Mercedes, which “you can customize to the extent you want to.”