Northern Trust’s Luxembourg business focuses on the firm’s client-centric approach; offering complex, tailored solutions and building strong partnerships.
Northern Trust (NT) established its Luxembourg office in 2004 as part of a client-led initiative which, says Revel Wood, head of business development, Luxembourg Fund Services, exemplifies NT’s approach to business. “We pride ourselves on being a client centric organisation and achieving service excellence through partnerships. And that’s exactly how the Luxembourg office was set up.”
The global corporate Unilever wanted a innovative, tax-transparent pension pooling product, Northern Trust responded and engaged in a unique partnership initiative including the client, local Luxembourg tax and legal specialists and over two and a half years created a solution, the first of its kind. Furthermore, the Unilever initiative directly led Luxembourg’s government to make tax law changes, which in turn made it a more favourable destination for multinational pooling vehicles.
Northern Trust was also the first global custodian to offer a UCITS III management service in Luxembourg and is now expanding into the alternatives space. “This will stand us in good stead as investors look for greater transparency and sophisticated solutions resulting in more demand for regulated UCITS products,” says Wood.
Northern Trust remains focused on the medium-sized asset managers – between €20 and 100bn assets under management. “We work well in that space because the asset managers are looking for a full partner for front, middle and back office solutions. Once firms get over that size, they want a commoditised factory solution where it is all about scale and volume. We’re better in the world of the more complex, tailored solutions.”
For example, Wood points to the likes of Ashmore as a flagship client that specialises in distressed debt, emerging markets and other illiquid instruments and funds. In choosing to work with the right clients, we have been able to benefit from their success. We have also expanded our capabilities due to their need for complex solutions. In the current post-crisis environment, there is a great demand for risk monitoring, governance, counterparty risk measurement and the transparency around valuations.”
Northern Trust boasts strong risk management solutions and has many years of experience in valuing illiquid and complex instruments having launched an independent valuations service in 2004. “Recently we added to our OTC valuation capability by signing up Numerix giving us access to a rich set of mathematical models and expertise to complement our long standing relationship with Markit Partners and SuperDerivatives,” says Wood.
Word gets around
Most of the new business that Northern Trust has gained has been due to word-of-mouth referrals rather than large marketing campaigns, says Wood, which is testament to the firm’s quality of service and strong teams. “Since 2004, NT’s Luxembourg office has enjoyed less than 5% turnover of staff, this translates to high levels of accuracy and timeliness of reporting for our clients.”
Luxembourg remains a key market for NT. It is the second largest funds market after the US, worth €1.8tn as of December 09 and is growing in strength as a jurisdiction in the post-crisis environment as investors seek more protection, migrating from off-shore domiciles to more regulated jurisdictions with greater transparency and more regular reporting. And from an asset management perspective, Luxembourg’s success with the UCITS structure has made it a vital hub for global as well as European funds distribution as the UCITS brand continues to spread into international markets.
Wood believes NT is well positioned to take advantage of these growth opportunities. “Since December 2008 we have doubled our capacity to accommodate expansion, and launched a number of initiatives collaborating with local law and accounting firms to demonstrate our commitment to Luxembourg. As regulation increases, asset managers will be under pressure to invest in systems for greater transparency reporting, valuations, governance, risk management and compliance. Many believe it will take another five years for investment levels to return to a pre-2007 level. The combination of reduced revenues and increased costs will create opportunities for service providers with established, highly integrated global solutions to take on more non-core functions from asset mangers, but also capitalise on market consolidation.”
Going forward, Wood also foresees an increase in demand for alternatives business in Luxembourg – notably real estate, private equity and fund of hedge funds. “This is good for us as we are a recognised leader in providing solutions like the Private Equity and Hedge Fund Monitor products which offer relief to clients looking for more transparency around liquidity and counterparty exposure in a traditionally less transparent industry.”
©2010 funds europe