Northern Trust: Asset Owners Aim to Drive Investment Performance with In-House Management

White paper analyzes evolving investment management preferences among sophisticated asset owners

Large global asset owners increasingly manage greater portions of their investment portfolios in-house as they look for ways to reduce fees, enhance control and drive overall investment performance, according to a new white paper authored by Northern Trust. The paper, The Changing Tide: The Evolution of the Asset Owner Investment Model which includes insights from senior investment executives at institutions that represent more than $300 billion in global assets, also highlights the importance of driving ‘Operational Alpha,' particularly in a challenging environment.

Motivated by rising costs, new technology, global regulatory change and a drive toward fund consolidation, almost one out of five (19%) institutional investors have increased the proportion of assets that are managed in-house in recent years.ⁱ

"As asset owners evolve their investment models to include more in-house management they are reevaluating the process from start to finish," said Dan Houlihan, head of Asset Servicing, Americas at Northern Trust. "They see opportunities to increase efficiencies, control costs and achieve regulatory compliance by outsourcing non-core functions across their back, middle and front office. These include a variety of activities: from collateral management to foreign exchange; from investment operations to compliance monitoring; from client reporting to trade execution."

"Whether you are an asset owner considering in-house asset management for the first time, or looking to increase the proportion of assets you already manage directly, you need to understand where you will be adding value in the process," said Mark Austin, head of UK Institutional Investor Group at Northern Trust. "For many, it is about focusing on their core investment propositions and strategies. Ancillary components of the operational value chain can be outsourced to specialists."

According to the white paper, before insourcing portfolio management asset owners should consider the full spectrum of costs and risks as well as the opportunities – including implementation costs, investment expertise, technology requirements, and regulatory compliance, as well as the need to deliver operational efficiency.

"At Northern Trust, we have both the technology and expertise to help clients make a seamless transition to in-house management, but we also understand asset owners need to consider all the implications before making the transition," said Houlihan. "We believe this white paper is a valuable resource to help inform their decision-making."

About Northern Trust

Northern Trust Corporation NTRS is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 20 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2019, Northern Trust had assets under custody/administration of US$11.3 trillion, and assets under management of US$1.2 trillion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Please read our global and regulatory information.

ⁱ Bfinance "Asset Owner Survey: Innovations in Implementation" September 2018
https://www.bfinance.co.uk/insights/asset-owner-survey-2018/asset-owner-survey-2018-download/

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