Moving up slowly but surely
Northern Trust’s small but effective team literally picks fund managers by hand, writes Yuri Bender.
Northern Trust is slowly but surely boosting its multi-manager investment team in a bid to enhance its European visibility. It recently hired former Fuji Investment Management Company senior equity research analyst Veronique Botton as programme manager of its European team in London. This follows the hiring of Michael Kinny, former head of manager research from consultancy Bacon & Woodrow in 2001. Northern Trust’s aim is to take the disciplines of fund manager selection pioneered in consultancies and adapt them to a broader client base, encompassing not just institutions, but also private banks, insurance companies and wealth management organisations. Compared to its US competitors who are making a name for themselves in Europe, it still has a long way to go. Northern Trust has garnered just E1.7bn of its E11bn global total from European customers. Frank Russell has E64bn in multi-manager programmes globally, of which E15bn is in Europe. SEI has E12bn out of its global E48bn in Europe. Distribution deals But Northern Trust is a much bigger operation with other priorities, not just multi-manager programmes. Globally, it has E270bn of funds under management and E1360bn in custody. It launched its first multi-manager funds in North America in 1979 and in Europe in 1986. It has not sought to sign a large number of deals, but has opted for a softly, softly approach. It has only two major distribution agreements in Europe, one with Italian direct sales operation Mediolanum and a recently signed agreement with UK life insurer Scottish Equitable. Mediolanum has its own set of Dublin funds, for which Northern Trust acts as sub-advisor. Effectively, Northern manages E500m of the assets. The partnership with Scottish Equitable is a much closer one. Northern Trust has set up two new manager of manager funds for the Edinburgh-based insurer: a balanced managed fund and a stockmarket managed fund. But in order to share cost advantages, these funds will utilise the sub funds of Northern Trust’s existing Dublin-based multi-manager range. Manager selection Northern Trust will be helping Scottish Equitable to introduce the funds through the independent financial adviser (IFA) network. “The trend for life companies to distribute products using a manager of managers rather than simple fund links is a logical development,” believes Tony Earnshaw, Northern Trust’s managing director of European multi-manager business. “Insurance companies have a large client business and huge admin factories to feed. It is a slow burn in terms of getting money back, so you need consistent performance.” Scottish Widows, another UK life company, has a multi-manager alliance with Frank Russell. And Mr Earnshaw has promised not to make any similar deals with Scottish Equitable’s direct competitors. France is the next country Mr Earnshaw’s team is looking at. “Partners often come to us, but we have to be picky,” says Mr Earnshaw. “And it is essential to tailor new products. We can’t just expect new partners to swallow the same regimes we have used for Scottish Equitable or Mediolanum.” Another deal with an offshore private banking style operation is also rumoured to be in the pipeline. “There is no big Northern-owned distribution network, just a small team of sales and marketing people, in an institutional-style operation,” says Mr Earnshaw. He also claims there are major differences in the way Northern Trust chooses fund managers, compared to its two US competitors. “Ours is a better model of selection because we are using experienced, seasoned professionals to make judgements. We are divorced from consultancy, so we are not relying on a consultancy database, as we have several different types of target clients.” Mr Earnshaw also says Northern Trust sends in top professionals to analyse managers before selecting them. “We are not using juniors to do box ticking. We are going into the big fund groups with our senior guys. We are making judgment calls backed up by quantitative research. The quant work gives us the information we need to assess and make judgements on.” Goldman Sachs Asset Management was hired to run e60m in European equities earlier this year. At the beginning of 2002, Abbey National was dropped from UK equities and Alliance Bernstein was appointed. Jupiter, SG Asset Management and Mirabaud are all currently on this roster.
