For super funds and their advisers

Northern Trust’s blueprint for growth in 2022

•5-Bert-Robelo

Northern Trust Asset Management (NTAM) has grown local AUM more than 500 per cent since it opened its doors in Australia. And a “year of transitions” could create the opportunity for even more.

When Bert Rebelo was working for NTAM in Hong Kong in the mid-2010s, he began to think about the opportunity Down Under. NTAM was one of the world’s largest asset managers, counting dozens of global pension and sovereign wealth funds among its clients, and saw an opportunity to expand its presence and capabilities in what was then the world’s fifth largest – and now fourth largest – pension market.

NTAM had won NZ Super and LUCRF as clients in 2013, and Northern Trust opened an office in Melbourne where it was providing custody and fund administration solutions (its global custody business now counts the Future Fund among its clients). The broader Australia market, to Rebelo’s mind, was “too big to ignore”.

“It was clear we needed to build a presence, and it didn’t really matter if NTAM sent me or somebody else, as we had a shared conviction: Australia was a market where what we had to offer would really resonate,” Rebelo said. “After a thorough assessment of our offering and the competitive set, I was convinced our product offering in the quantitative investing, index and ESG solutions space would resonate – it’s what many of our own clients, some of the world’s most sophisticated investors, were seeking and it made sense that Australian funds would also be seeking the same.

Rebelo, who’d spearheaded the case for expansion down under, was tapped to establish a presence for NTAM in Melbourne in 2015, which he eagerly accepted.  Since then NTAM Australasia has grown AUM some 500 per cent.

“After years of successfully leveraging our experts in Chicago, Bangalore or London to support the growing business, we decided to expand, establishing  in-region support and expertise,” Rebelo says.   “We hired Scott Bennett, head of quantitative research (formerly of Russell Investments), who’s been based in Australia from 2018 onwards. Having local expertise and knowledge was a big driver behind our expansion. Since then we’ve built a diverse team of 11 members. We’re committed to expanding our capabilities and growing with our clients in Australia.”

Rebelo now sees the looming disruption of Your Future Your Super (YFYS), which is driving funds to lower tracking error or passive strategies for their core allocation, as an opportunity for NTAM to provide a bespoke quantitative solution. 

“This, combined with the boots on the ground to support it, presents a winning combination,” Rebelo said.

But Rebelo also knows that Australia’s super funds are increasingly concerned about not just YFYS, but markets generally. Valuations have been a growing concern since the explosive rally in mid-2020. Northern Trust is still constructive on risk assets,  and believes the recent omicron-inspired sell-off was an overreaction.  Although inflation weighs on his mind (“How long is transitory?”) Covid is mostly in the rear-view – and recent developments might even be positive.

Northern Trust expects strong earnings growth and continued low interest rates to lead to slowing but sustainable economic growth in 2022. It foresees 2022 as a year of transitions. Central bank fiscal policy might become less accommodative or stimulative through a reduction in bond purchases. After years of virtually no inflation, investors are becoming more aware of the importance of hedging against it, given its recent sharp emergence.

Sustainability is a core capability at NTAM – “We have built this core strength into an integrated sustainable investment and stewardship program focused on helping investors achieve their financial goals.”  But there’s also the issue of decarbonisation to contend with.

Locally the NTAM team is devoting a significant amount of analytic work toward decarbonisation as it pertains to the ASX300, which has a greater skew to highly pollutive industries than other domestic and global indices.

“Investors may need to take a more nuanced and thoughtful approach and will probably need to set different carbon reduction targets for ASX300 versus MSCI World or accept greater tracking error for carbon reduction strategies for Australian equities,” Rebelo said. “We believe for Australian equities there should also be more focus on forward looking transition risk measures essentially trying to look at how Australian companies are evolving.”

The other big issue facing Australia’s super funds is how to raise member engagement from an unacceptable low. Rebelo is a passive observer, but believes the issue cuts to the heart of superannuation’s sole purpose.

“With the addition of the new super ‘stapling’ rules which have come in with YSYF a big opportunity presents for funds to build a true competitive advantage in the retention and engagement of their members.”

“It is important to ensure transparency and clarity for members to better understand what they’re invested in, if their portfolio is socially aware or even what their balance is.  For Australian institutional investors, and also for NTAM as a global investment manager and corporate citizen, we all have not only an opportunity, but a clear responsibility, to contribute to helping educate members and investors alike.”

“Success in the Australian market will require asset managers to partner more with asset owners and this partnership approach is something that I believe NTAM Australia does very well.”

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