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.”

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.” 

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.”