The winning formula

As originally seen in Global Custodian

“The reality is, it’s a competitive marketplace, and in every bid that goes on, we do come up against really strong competition,” says James Wright, head of asset owners, EMEA at Northern Trust, of the UK pension fund space. “As the market continues to consolidate over the next 10 years, those funds are going to become bigger, more attractive and more lucrative to the competition.” 

Northern Trust is on a spectacular run of form with asset owners across the world. From its rising prominence in the Australian super fund space to an astonishing 30 new mandates in North America alone during the first six months of the year – pension funds are big fans of the asset servicer right now. 

Further evidence of this trend can be found in the UK. Fresh off the back of securing a fund administration and custody mandate from Nest, the UK’s largest workplace pension scheme, Global Custodian spoke with Wright to try to discover the ingredients behind the recipe of success which has resonated with pension funds across the British Isles.

It wasn’t just this one deal for the Nest scheme – which is forecast to pass £100 billion AUM by 2030 – which prompted our curiosity. Elsewhere over the past 12 months Northern Trust has been appointed by the £60 billion Border To Coast Pensions Partnership, along with renewals for the £11.5 billion Lancashire County Pension Fund and £46.9 billion defined benefit pension scheme manager Brightwell. 

Go back even further and from 2019-2023, our website is littered with mandates for Northern Trust in the UK pension space, including a flagship statistic of servicing six of big eight pension pools set up in the years before that.

“We’ve been in the pension space for a long, long time and ultimately it’s about having trust within the industry. It really comes down to a track record and being fully focused on this industry,” adds Wright. “We have so many experts across the business that are emebeded in the pensions industry – they understand it, they live and breathe it, they’re out looking in the market all the time at trends, what’s going on, they’ve got a lot of stakeholders that they engage with.”

Wright namechecks a duo in Mark Austin, pensions and insurance executive for EMEA – who also leads the Defined Contribution Investment Forum (DCIF) – and Ian Hamilton, head of UK asset owners as key contributors, highlighting “clients love continuity and dealing with the people they’ve been dealing with for a long time that they like and trust”. 

“We’re also bringing fresh, young blood into the team as we’re expanding as well. It’s a combination of those things. But I think fundamentally, we have built a reputation and we’ve got momentum and that always helps.”

While there may be no secret sauce, it does seem to be a multitude of combined factors – experience, commitment, trust and talent, to name a few. Wright has also established new teams and approaches: a public sector team, private sector team and a client solutions team which works with clients, looking at their operating models on an end-to-end basis to try and find the most efficient models for them moving forward.

The pensions landscape is one which is constantly shifting and evolving along with demands, therefore an understanding of client needs and experience in the sector is paramount for success.

Wright himself has over 35 years of experience in the asset servicing industry. Prior to joining Northern Trust in 2016, he spent 29 years at JP Morgan where he held a variety of leadership roles in its investor services division, latterly with responsibility for major global asset management relationships with highly complex service models. 

“The reality is, amongst the local government schemes, a lot of these folks know each other, and so they all talk about their experiences,” says Wright.

“When I joined Northern Trust there were about 100 councils in the UK that had their own individual pension plans. We had about 45 of those councils already. When the pools were encouraged to come together by the government, we came from quite a strong standing start.

“We worked with the government to help create the ACS [Authorised Contractual Scheme], which again provided more credibility, but all of those things coming together, credibility, existing relationships and then a strategic focus, knowing that was really important for us to maintain our position.”

The UK market is particularly competitive – you have providers such as HSBC, State Street, BNY and CACEIS, to name a handful – competing for these pools among other individual deals. They will all be present in RFPs, in attendance at industry events and always in the running for these mandates which Northern Trust has prevailed on. The Nest deal, in particular, was a standout for Northern Trust, with the scheme switching from State Street to its new partner.

“Needless to say, the local government pension schemes are extremely competitive,” explains Wright. “As the market continues to consolidate over the next 10 years, they’re going to become bigger and more and more attractive and lucrative to the competition.

“We have to prove value all the time. Some of the competitors are probably more actively pursuing this market than others and some of the scale players are probably where we are, in a position where we are be happy to play at all ends of the spectrum.”

Interestingly, Northern Trust appears to have a new strategy in place based around being more “disciplined on pricing and bidding on fewer opportunities” as Michael O’Grady explained on the recent earnings call. He added that the stance is resulting in higher margins for the business it is winning, and seemingly the approach is not impacting the asset owner business – not in the US, not in Australia, and certainly not in the UK.