Global custodian of the year: Northern Trust

From left: Lisa Bruce, Sunil Daswani, Penelope Biggs, Edgar D'Mello, and Madeleine Senior

Northern Trust, a 124-year-old Chicago bank that initially catered to the needs of wealthy local clients, has steadily cemented its place among the leading global custodians, gaining plaudits not for being the biggest (although it has $5.24 trillion of assets under custody), but by being one of the most consistent.

Currently looking after $1.3 trillion worth of assets belonging to 240 central banks, sovereign wealth funds and government agency clients around the world, Northern Trust has built a trusted custody operation with two distinct traits: a narrow business focus and successive, largely organic, growth. This means its technology platform - a critical component in the custody business - is far more consistent than some of its competitors that have grown via acquisition.

A specialist

Unlike some of its peers, Northern Trust's top management is not distracted by a large credit card business or conflicted by owning a big investment bank. Instead it focuses on two core businesses: asset servicing and asset management. "It's a very focused business model," says Madeleine Senior, head of business development for Europe, the Middle East and Africa for Northern Trust corporate and institutional services in London. As a result, Northern Trust can devote significant resources to improving technology and services for its custody clients.

A senior reserves manager at a G-20 central bank, who spoke on condition of anonymity, ranks Northern Trust his top choice because it is a "truly global custodian" that has "invested heavily in its core businesses and continues to do so". Northern Trust connects with more than 1,800 managers active in 104 markets, supporting 24,768 portfolios daily and processes over 20.7 million transactions per annum. The custodian says it plans to invest another $1.7 billion on new technology during the next three years to help clients with their governance, oversight, transparency and multi-currency needs.

Its focus on people and technology was a point raised consistently by Northern Trust clients. "They're not the biggest, but they are good at investing in technology, which is crucial in this business," says Oduetse Motshidisi, deputy governor of the Bank of Botswana.

The Bank of Botswana is a long-time client that started off with two custodians for the purpose of cross-checking each other. But the African central bank decided in 1996 to settle for one custodian to improve consolidated reporting of external managers' performance.

Northern Trust was also engaged by the Bank of Botswana to assist in a major rebalancing of its portfolio following a comprehensive review of its reserve management strategy; ‘'Northern Trust did a remarkable job," Motshidisi says.

Since late last year, Northern Trust was also made responsible for the delivery of ‘full scope' performance measurements for the Bank of Botswana.

While the Bank of Botswana still "shops around" to make sure better alternatives are not being spurned, Motshidisi says Northern Trust serves all its needs. That includes consolidated reports of the nine firms managing assets on behalf of the central bank and the Pula fund (Botswana's sovereign wealth fund) in different currencies - US dollars, IMF special drawing rights and the Botswana pula - which requires "a bit of flexibility" on part of a custodian responsible for the consolidated reporting, says Motshidisi.

Organic growth

Northern Trust's narrow business model also allows for it to offer consistency and long-term commitment, which can benefit smaller clients. The custodian has developed a close relationship with the World Bank's Reserve Assistance Management Programme (Ramp), which helps fledgling central banks develop asset management operations by building in-house capacity and employing financial service providers.

Edgar D'Mello, head of relationship management for central banks, governmental and inter-governmental agencies, in London believes this is where Northern Trust really shines. When central banks extend beyond the Ramp programme and begin to engage with their own external managers, Northern Trust will assist with the engagement and oversight process. "We also provide accounting, performance and risk solutions, as well as ongoing intellectual support," says D'Mello.

Central Banks praise Northern Trust's "solid" customer service. They singled out settlement and safekeeping, client reporting and the bank's integrated technology as strengths. "Northern Trust does a great job in providing core and value-added custodial services," says one fixed income operations manager at an official institution. "Service offerings are first rate. An important point to note is their commitment to collaborating with clients and their external service providers."

Northern Trust has also developed a single accounting platform for custody clients with exposures that vary greatly. One of these is Northern Trust's general ledger interface, ‘passport'. "Multi-currency reporting, tax reporting, dividends, it is all dealt with through their technology," says Bank of Botswana's Motshidisi. "If you need management reports, executive reports, you can produce that with the [Passport] system."

The company also enhances its technological systems to ensure it remains attractive to the biggest and most sophisticated clients, for example upgrading its collateral management systems, which some parties say was in need of an overhaul. In April 2013, Northern Trust was appointed by ATP (the Danish Labour Market Supplementary Pension Scheme), to custody more than $100 billion in assets and provide collateral management services. Northern Trust's "global servicing capabilities were key factors in their appointment"," says Henrik Gade Jepsen, chief information officer at ATP, which started transitioning its assets in October.

For its ability to cater to the needs of clients both big and small, across asset classes and currencies around the world, Northern Trust is Central Banking journal's global custodian of the year for 2013.

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