Fiddich Review Centre
Alternative Investment

Combining Tech and Talent to Solve Allocators’ Portfolio Management Challenges

It’s not unusual for software providers to tout multi-asset portfolio management tools that consolidate data – such tools do address a core challenge faced by institutional asset allocators. Support beyond a call to the help desk, however, isn’t typical – yet it’s a cornerstone of what Northern Trust Front Office Solutions does every day.

“When a client engages us for services, we stand up a vertical around their portfolio, including having various levels of seniority and experience working with them. Our people are going to know that portfolio inside and out, and each of its unique aspects,” says John Turney, Global Head of Front Office Solutions, Northern Trust. “When it comes to talent, our guiding philosophy is to hire people asset allocators would hire themselves.”

Clients have taken notice of this expertise. Recently, a large university endowment office faced a staffing shortage that represented a risk to its day-to-day investment process. In a tight spot, they turned to Northern Trust.

“They asked to borrow a couple of our people for a few months to help them through that patch, and we agreed,” says Turney. “It’s not part of our model to be in the staffing space, but we saw it as an opportunity to help a partner. That they would turn to us in a challenging time like that speaks to the quality of our people and the confidence our clients have in us. We’re very proud of that.”

Smooth implementation quickly addresses data and process challenges

Institutional allocators face many challenges – not enough time and resources, for starters – but when it comes to the front office, the hurdles can be generally viewed as either data challenges or process challenges.

“Allocators deal with disparate sources and non-standard formats of data that they’re trying to corral to help manage a multi-asset portfolio,” says Turney. “There are timeliness issues with data. Often, they can’t get the desired view of their data or overall portfolio when they want it.”

In an investment world that still has an over-reliance on Excel, structuring data is another key need for allocators, whether it’s as simple as transferring information from a piece of paper into a digital format or gaining an optimal view of it once that conversion has occurred. Speaking of Excel, on the process side, allocators often become bogged down by manual processes, which creates opportunity cost when investment teams could be focused on higher value work. On smaller investment teams, there is also the risk of only one or two people owning all the secrets to the data process kingdom, as it were.

Turney and his team view and provide solutions for portfolio management in the context of four themes, the first of which is documents, research management, and manager relationship functionality (CRM). “That’s where the process of managing the portfolio begins for allocators – meeting with managers, doing research, pulling in meeting notes, and so forth,” he says.

Second is portfolio analysis, which looks at performance, benchmarking, and risk statistics within the portfolio. Third is portfolio control – accounting functions and a suite of tools that provide a view of liquidity management and forecasting tools. And the final theme is workflow – the necessary actions that result from all the activity in the portfolio. For example, if an investment exceeds defined tolerance, the Front Office Solutions platform generates a task to call the manager and discuss the situation.

The challenges faced by allocators are pressing, and when Turney and his team begin working with a new partner they put talent at their disposal to facilitate the adoption and implementation process. The goal is to massively compress the timeline.

“Clients come to us with widely varied historical models they’re converting from – such as Excel, for example, or a legacy piece of technology never intended for use with a complex multi-asset portfolio,” Turney says. “We focus on the implementation process to help clients clean up historical data, look at their processes, and – importantly – consider the different user personas in the firm so they’ll find our platform intuitive to use. Our team gets allocators onto the system and running very quickly, versus buying a piece of software and then standing by as your in-house operations team languishes for months to work through the historical data load.”

Meeting challenges presented by allocators’ significant use of alts

Use of alternative investments by many institutional allocators has dramatically increased, but the technology they have at hand likely hasn’t kept pace.

“From a continuous development standpoint, the underlying architecture of our software is very extensible; it was designed this way from the start to readily support the ever-changing form of alternative investments” Turney says. “All the research, portfolio analytics, and workflow reference an integrated data model within our software so there’s no reconciliation going on across modules. We have an ongoing commitment to being a technology leader, and our allocator clients can be confident we’ll continue to invest in innovation to remain at the forefront.”

Tools that were passable when a small percentage of a portfolio was dedicated to alts are now essentially obsolete. This can be problematic when a CIO needs a consolidated view of the fund’s exposure and confidence that the data is timely and representative of the real-time scenario.

“When they partner with us, the CIO can come in each morning and effectively have a real-time view of their exposure and risk in alts, in addition to their public assets,” says Turney.

That’s just one reason why Turney expects demand for Front Office Solutions to increase in the foreseeable future. It’s not uncommon for him to meet with clients and prospective clients and be asked the question: “You do all of this right now?”

“It’s a good feeling to say, ‘Yes, we can do all of this whenever you want,’” says Turney. “It’s a good sign that all aspects of our solutions resonate with allocators.”

Turney and Northern Trust anticipate this will continue as they expand Front Office Solutions more proactively in the EMEA market and look to help allocators in the APAC region.

“Right now, our growth is largely a geographic story. To date, we have been primarily focused on the North American market. And now we’re more actively engaged in expanding in the EMEA market,” says Turney.

“Allocators globally have a need for these capabilities, particularly as they continue to increase the allocation to alternatives,” he adds. “We will be building out client solutions teams globally to meet the needs of allocators, and locally supporting those allocators to understand and address any regional nuance.”

Learn more about Northern Trust’s front office solutions.

© 2022 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors.For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures. The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF; Northern Trust Global Services SE UK Branch, UK establishment number BR023423 and UK office at 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden, registered with the Swedish Companies Registration Office (Sw. Bolagsverket) with registration number 516405-3786 and the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) with institution number 11654; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA #160018; Northern Trust Global Services SE Norway Branch, org. no. 925 952 567 (Foretaksregisteret) [VAT if applicable], address Third Floor, Haakon VIIs gate 6 0161 Oslo, is a Norwegian branch of Northern Trust Global Services SE supervised by Finanstilsynet. Northern Trust Global Services SE Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE. The Branch has its registered office at Grosspeter Tower, Grosspeteranlage 29, 4052 Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License #12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) are licensed by the Guernsey Financial Services Commission. Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579)/Northern Trust Fiduciary Services (Ireland) Limited (161386), Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.

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