Northern Trust Corp. said Friday it has agreed to buy an asset management firm from First Chicago NDB Corp. for $50 million.
The firm, ANB Investment Management and Trust Co., manages about $28 billion of assets. Most are in index funds, passively managed investments designed to track the performance of market indexes such as the S&P 500.
Northern Trust said the purchase, expected to close by yearend, would vault it into the top five index managers in the country with $38 billion of passively invested assets under management. In all, Northern Trust manages $159 billion of assets for institutions and wealthy individuals.
First Chicago said it is selling ANB to concentrate on its actively managed investments, which total $50 billion.
"The index business is a consolidating business, and it would be difficult for us to defend or gain in our position," said J. Stephen Baine, president of First Chicago Investment Management Co.
One reason: Institutional investors tend to look for index fund managers that can provide master trust custody, which the bank does not handle, Mr. Baine said.
Northern Trust, on the other hand, has a master trust custody business and wants to expand in passive investments, said Stephen N. Potter, senior vice president of global investments. Its institutional assets under management have increased 25% annually for the past three years. "We can grow even faster with a vast array of institutional products," he said.