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Best Global investor services house: Northern Trust |
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Also nominated: BNY Mellon and Citi |
Custody banks are in the vanguard of the global battle for transparency as a way of combating investment risks. The regulatory challenges that are coursing through the industry are placing unprecedented pressures on investor services clients: hedge funds, private equity firms, boutique asset managers, pension funds and other asset owners.
These clients groups are facing new rules such as AIFMD, Ucits IV, Dodd-Frank, central clearing, tax changes and a host of other issues. For banks operating in this area, having a clear focus on delivering services to clients to help them make the transition to the new environment is a crucial determinant of success. Although other banks might have more assets under custody or even more absolute client numbers, Northern Trust again wins our award.
Measuring client satisfaction is an inexact science but Northern Trust has an approach to client service that puts it above its competitors. It has consistently come top of the R&M Consulting annual client satisfaction survey over the past 10 years. It has maintained that position this year.
Crucial to achieving this is that it structures its business around its clients’ needs rather than what products it can sell them. In Northern Trust there is no P&L at the product level; it is all driven by three client segments: wealth managers, asset managers and asset owners.
For asset managers, including alternative asset managers in hedge funds, private equity and infrastructure, the past 12 months have been particularly torrid. Not used to dealing with the nitty-gritty of how their businesses actually run, these managers have been forced by the operational risk concerns of their investors to take a long hard look at how their back offices operate. It is a key battleground for the investor services banks.
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“Relationship managers run the show here. And that means our behaviours are very different” |
Northern Trust is winning this battle through a number of key initiatives. For non-European alternative managers facing up to the problems caused by AIFMD, it is offering up its own locally registered management companies as onshore shells. This year it also acquired Omnium, the hedge fund administrator previously owned by US hedge fund Citadel. This will dramatically enhance its ability to serve the large and complex needs of its hedge fund client group.
At the same end of the spectrum as the alternative managers are the traditional boutiques. Over the past year those with strong performance numbers have attracted dramatic increases in assets under management as institutional investors adopt a barbell approach to investing. These institutions are allocating more to niche strategies and boutique managers at one end and then either managing larger pools of their own assets in-house or allocating them to low-cost, big providers through ETFs or managed accounts.
Servicing both sides of that barbell is a particular challenge for investor services firms. Being a mid-sized firm, Northern Trust is better able to serve both client groups, having the scale needed to meet the requirements of the big providers while also having the nimble client focus that boutiques need.
“The barbell is where we have to set our strategy,” says Mark Schoen, head of global product and strategy EMEA at Northern Trust in London. “We can help boutiques deal with the new flows that are coming in. But some boutiques suffer from limited know-how on the infrastructure side.” At the other end of the scale, Northern Trust is a leader in pensions servicing, taking on 17% new assets in the last year in EMEA alone.
Within this it has won a number of new global mandates where asset managers have outsourced their entire back office to Northern Trust. One of these is the Queensland Investment Corporation, the sovereign wealth fund of the Australian state of Queensland.
Mandates such as this show that Northern Trust is also more global than most of its direct peers. While the business is still skewed towards the US for historical reasons, it is growing fast in EMEA and in other emerging markets. With the US now contributing only slightly over 50% of its assets under custody (AUC), and Europe up to 34%, Asia, Australasia and the Middle East now account for around 15% of its business. These regions are also the fastest growing.
Although Schoen describes Northern Trust’s global AUC numbers of $4.1 trillion as “relatively modest”, the firm stands out for its commitment to clients. “Relationship managers run the show here,” he says. “And that means our behaviours are very different.” In some businesses scale comes second to service. And in the febrile context of change facing asset management firms, having a partner such as Northern Trust will make their lives easier.
