Northern Trust Corp. has found a new vein of growth within its Global Fund Services unit.
Over the past two years, the Chicago-based business has made inroads servicing asset managers at home and abroad. In the United States, it has won new clients for everything from fund administration to middle-office services. Overseas, its successes have included significantly increasing the fund of hedge fund assets it services and getting into position to provide middle-office services in Asia.
The developments show that Northern Trust has come a long way in a few years in expanding into a new area, said Peter Cherecwich, head of GFS in North America and chief operating officer for corporate and institutional services at Northern Trust.
Three years ago, Northern Trust was best known for its private bank services and as a pension custodian, said Cherecwich, who joined the company in 2007 from rival State Street Corp.
"We hadn't done a great job positioning ourselves with the asset managers, especially in the U.S.," he said.
The groundwork to change that had already been laid, however, with Northern Trust's 2005 acquisition of Baring Asset Management's Financial Services Group from ING Group of the Netherlands.
The buyout was Northern Trust's "first foray into supporting asset managers," Cherecwich said. The company declined to provide its revenue figures for the business line, but Cherecwich said the goal is to double revenue within five years.
The Global Fund Services unit's recent accomplishments in the area of supporting asset managers include:
• Landing, over the past year, its first six mutual fund clients in the United States, for services including fund accounting, administration and transfer agency.
• Increasing, over the past 16 months, the number of its middle-office clients in the United States from two to eight.
• Increasing the fund-of-hedge-fund assets that it services to $86 billion from about $25 billion to $30 billion two years ago; most of the increase has come from clients in Europe, Cherecwich said.
In addition, Northern Trust is negotiating with three potential clients in Asia to implement middle-office services, marking its entry into that business in the region.
Two demand trends are helping trust banks such as Northern Trust, Bank of New York Mellon Corp. and State Street gain ground in global fund services, according to Michael Kon, senior analyst with Morningstar Inc.
In the United States, trust banks have been able to gain market share from nonindependent servicers, he said. Fund managers want partners that don't provide services like brokerage or lending, for instance, Kon said.
Overseas, demand is growing because fund managers are becoming more sophisticated and global, and they need more sophisticated administrators, Kon said.
Funds' local service providers in Europe and Asia, say, may not be able to support them in multiple currencies or cross-border trades, Kon said.
State Street and Bank of New York have a large lead in global fund servicing, "but that doesn't mean Northern can't close the gap," Kon said. Because of the demand for independent, sophisticated providers, Northern Trust can grow without challenging its two U.S. trust bank rivals directly, Kon said.
"It's a land-grab game," he said.
To accommodate its growth in global fund services, Northern Trust in recent months has created and filled several new positions within the unit.
Paul Fahey, a veteran of State Street Bank and Trust Co. in Boston, was named director of global product management and development. Marc Mallett, whose background includes a stint at Fidelity Investments and Citisoft Inc., is global head of client conversions, investment operations outsourcing.
Fiona Horsewill is global head of PMO/architecture strategy for GFS. Before joining Northern Trust, Horsewill was the head of investment management operations for Europe, Middle East and Asia at Lehman Brothers. And Mark Herraman was named head of investment operations outsourcing client service for Europe, the Middle East and Africa. He is a veteran of Henderson Global Investors.
Northern Trust has also expanded its U.S. Global Fund Services team, appointing three executives to key positions.
"This is still a people-driven business," Cherecwich said of the new posts. "You need people who understand what it is that needs to be done."
