Northern Trust adds portfolio management, dealing to HK

The firm moves to provide index equity portfolio management and equity and derivatives dealing after receiving a type-9 licence. It is also looking to enter a new Asian market.
Northern Trust adds portfolio management, dealing to HK

Northern Trust is to offer portfolio management for equity indexing as well as in-house equity dealing from its regional headquarters in Hong Kong after receiving a type-9 asset management licence from the city’s Securities & Futures Commission (SFC) this week.

Kevin Hardy, managing director of asset management in Asia-Pacific and country head for Hong Kong, also raises the possibility that the US firm is looking to set up in another location in Asia outside its regional offices in Hong Kong, Singapore, Tokyo and Bangalore.

“Knowing what I know internally, there is a plan for us to establish a footprint in one other country in the region,” he says, adding he can’t say which one.

But he stresses that the strategic objective since he landed in Hong Kong in 2008 has been to bring portfolio management closer to its Asia-Pacific client base. “For us it was about putting the infrastructure in place, getting the right people identified who would fill some of the roles,” he says. “We have had to reach into many parts of our organisation to get this done.”

Patrick Dwyer

Leading the development of portfolio management capabilities in Asia-Pacific is Patrick Dwyer, who transferred from Chicago this March as senior portfolio manager in its global equity team.

Northern Trust has 21 index equity portfolio managers worldwide, led by Chicago-based Chad Ravkin as head of global equity indexing. Dwyer will be responsible for building the regional business.

“The global equity indexing space is changing,” says Hardy. “A lot of clients as well as prospects want to be able to utilise someone based in the Asia region. When something happens they want to ask a portfolio manager what is going on.

“Before we were potentially missing out when people were looking to develop things around their domestic market. So having someone on the ground with a feel for how those markets work is going to open up a world of opportunity for us. As it is, we have a handful of local benchmarks. I believe in years to come those will be expanded.”

Hardy is non-committal when it comes to the question of whether Northern Trust will eventually introduce active portfolio management in Asia. He notes that the firm has its own interpretation of the word “active” – actively designing indices for clients and then managing them passively.

“There is a lot of intellectual capital that goes into that, but the deployment is passive,” says Hardy. “Clients are receptive to it because it gives them the scale needs they want and they are not typically challenged by the capacity constraints that many active strategies are.”

He notes that Northern Trust has become more consultative in the way it approaches client relationships, especially in Asia. And the major client demand he is seeing is for customised indexing as institutions seek a degree of diversification from standard benchmarked portfolios.

“Clients have covered the globe and are in developed and emerging markets. The ones jumping out most now are mid- and small-caps and getting exposure there. We can show clients how that can help them with their overall portfolio and how it can dampen some of the volatility they see.”

Northern Trust has $684 billion in assets under management, of which indexing represents about 43% and active fixed income strategies 40%. Of this, Asia-Pacific accounts for over $50 billion. The firm also offers multi-management and has a fundamental active business chiefly directed at US clients.

Craig Annakin

In the other strand of its regional push out of Hong Kong, Northern Trust has moved to introduce an Asian dealing desk offering equity and derivatives trading, much of it electronic. This is a service specifically to execute orders for its in-house portfolio managers on behalf of existing clients.

Leading the business is Craig Annakin, who joined Northern Trust in Hong Kong this May as head of Asian dealing, from Deutsche Asset Management in Singapore. He is now responsible for building out the business and is looking to hire buy-side equity dealers.

“We would be looking for about 10 hires,” suggests Hardy. “But there are multiple parts to the puzzle. You need good infrastructure, so you need to be supported by IT, and we are looking for support staff. As the business expands, we’ll be looking for product managers as well.”

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