The Solutions Market Perspective blog series aims to illuminate trends in the asset management technology and operations landscape with insights from vendors, solutions providers, and other industry experts. For our first blog in this series, we were excited to sit down with Northern Trust’s Marc Mallett who is the Director of Strategy for Asset Servicing, Americas. In our Q&A, Marc offers some of his perspectives on the solutions landscape, front office services, and integration across the investment lifecycle.
We’ve been closely watching Northern Trust’s movement into the front office; can you tell us how that side of the business has evolved over the last few years?
Marc: From asset managers to hedge funds to asset owners, this has probably been the most impactful move for Northern Trust clients in the past few years.
In particular, we’re seeing continued growth with our outsourced trading business that we refer to as Integrated Trading Solutions. We launched the business about three years ago, primarily in the UK in response to MiFID II’s unbundling of research and trading. But even in the early days, we were seeing interest across many segments of the market. Today, we have 65 clients globally that have outsourced trading to us and the size and type of these firms run the gamut—everything from relatively new entrants to firms managing $50B dollars and up.
At about the same time, we launched a business that we call Front Office Solutions, which is a combination of technology and service. We recently completed the acquisition of a fintech called Parilux which powers our Front Office Solutions platform. This offering has been targeted at asset allocators and, in particular, their CIOs and investment teams who are looking for tools to help them manage liquidity and exposure across their multi-asset class portfolios. A lot of times, when someone talks about the front office, they sort of immediately pigeonhole it to portfolio managers and analysts but there is a whole host of roles in the front office that look at data through a different lens—this solution is made for them.
The third front office pillar for us is investment data science, which is an area of particular focus after our recent equity investment in a firm called EDS or Equity Data Science. Through EDS, we offer a platform that’s designed to support active, fundamental managers, their decision support process, and everything from idea generation to research management all the way through to portfolio construction, optimization, and ultimately the creation of orders. We see this as very much the core of the investment decision making process.
You preempted our next question, which was going to be around investment data science, is there anything that you can add to what’s driving Northern Trust’s offering?
Marc: Historically, most fundamental active managers have worked with what one might describe as an analog process—working in spreadsheets, word documents etc. Over time, the inputs that drive their investment ideas evolve, but this analog process makes it difficult to update or even track investment decisions.
We saw an opportunity to digitize this part of the process and really focused on how to make the investment process more efficient, using workflow tools and techniques to support the research function and to give portfolio managers access to more data, faster when making investment decisions. I should be clear that this is not about changing a manager’s fundamental process—we aren’t trying to turn fundamental managers into quants. This is about giving the fundamental analysts and portfolio managers access to tools that will help them make their next best decision. In many cases, the most valuable information for the decision process is proprietary. One of the core tenets of our investment data science capability is to unlock that proprietary information and to make it more widely available to the entire investment team.
We’ve focused a lot on the front office, but how does Northern Trust look at the integration of front, middle, and back office services? And do you have any compelling success stories of managers leveraging services across the investment lifecycle?
Marc: What we call this integration is a “whole office” strategy and we describe Northern Trust as a platform company aimed at addressing the whole office. Our strategy isn't about having one monolithic solution but instead, a combination of technology and services that create a platform on and through which our clients can execute their business strategy.
In terms of success stories, we’re seeing more clients come to us looking at their operating model holistically and wanting to work together to drive down costs. A little over a year ago, one such client started this conversation by explaining how their operating model had become overly complex and expensive. Rather than come back to them with a discussion of individual services and capabilities, we introduced their executive team to the concept of the whole office.
What we ultimately suggested was to outsource their trading to us, which had a significant and almost immediate impact on their bottom line. On the back of that, we are able to leverage that connectivity to implement investment operations outsourcing, further simplifying their systems architecture. And in this instance, we were already the custodian.
It's key to note that this discussion started with the president of the firm. If we started this conversation with a middle manager, they might have felt that the idea was too ambitious. Now, this firm didn't make one big move, implementing all of this change at once, but seeing the vision and starting from the top was essential to success.
Is there anything that you’re particularly excited about in Northern Trust’s roadmap?
Marc: A lot of what we’ve talked about so far is focused on our asset manager and hedge fund clients, but we’re also thinking about asset owners. Large asset owners typically have incredibly complex operating models, with large internal investment teams managing public equities or fixed income and then also making allocations to third party managers and to private markets. For these clients, it has been difficult to pull all of that together and have a total portfolio view where the chief investment officer can look across that total portfolio and see risk, exposure, liquidity etc.
Historically, investment platforms existed in silos—you had a public equity platform and a separate private markets platform that were maybe stitched together with data management tools or data warehouses. We rarely see success with this approach so what we’ve done is use data models that pull these two silos together without creating a third system.
We've been able to combine data from our public markets and derivatives IBOR platform, Omnium, with private markets and allocation data from Front Office Solutions to create a fully featured total portfolio view. This solution supports the overall analysis conducted by the CIO and CRO, while also supporting the detailed requirements of the public markets and private markets investment teams. We look forward to implementing this for our clients as we continue to roll this out to the market.
Any closing thoughts?
Marc: We are really excited by the transformation we're creating and the engagement with our clients on front office capabilities. Supporting the investment decision making process is where we anticipate a lot of continued growth for us and for our clients over the next few years.