The Changing Tide: The Evolution of the Asset Owner Investment Mode

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.”

[i] Bfinance “Asset Owner Survey: Innovations in Implementation” September 2018