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Northern Trust’s new PE admin strategy goes open architecture
Northern Trust is in discussions with a strategic partner to help build what it believes to be a “game-changing” platform for its blockchain technology. Northern Trust was the first of the global custodian banks to go live with blockchain technology for private equity two years ago.
According to Peter Cherecwich, Northern Trust president of Corporate and Institutional Services, based in the Chicago global headquarters, “if all goes well, the next month or so will reveal our future strategy”. He was speaking during a visit to Australia around the middle of April.
“We have continued to build out our blockchain [the common term for distributed ledger technology] functionality,” he said. “The vision is to make the application available to other market participants. In order to do that, we don’t think being the owner is the right strategy. Also, as most private equity managers haven’t yet outsourced their administration, they would be candidates to directly benefit from the software.”
The value is in creating an “ecosystem” for PE funds. For example, he said, that Northern, working in conjunction with auditors PwC, now had a robot on the ‘node’ enabling real-time PE lifecycle audits directly from the blockchain. The ‘node’ is the basis for blockchain technology, providing access to the immutable master record.
Notwithstanding these developments, Cherecwich says that securities servicing is still a people business. “So, we are a service company. We will continue to grow in this [Asia Pacific] region because it is strategically important. But we will take a measured approach to growth and make sure we don’t take on too much too quickly… We have turned down new business in the past… As we continue to grow in Australia and New Zealand, it’s very important that we maintain our service model. We think we provide a layer of service that’s pretty special.”
Automation is particularly important in the area of core custody where, according to Cherecwich, “clients are wanting more in terms of solutions and wanting to pay less for it.” But if you do that without good service, you have a problem, he says. “You have to continue to invest in digitisation to take costs out… and you still have to invest in people to make sure the service is top quality.”
“The trick is to attract and motivate good people. In some sense, everything can be automated but, in another sense, people are still very important…. That’s the Northern Trust culture, which is a very old and conservative one. From a business perspective, growth helps a lot to achieve other aims.”
This is notwithstanding – or perhaps because of – technological developments, which seem to be gathering pace. Examples at Northern Trust are the firm’s acquisitions of FX technology Bex and its partnership with FX software specialist Lumint, Cherecwich says the firm needs to be proactive in educating both clients and staff on end-to-end solutions. “You have to actually take action to find the right people and move them around the organisation to learn about all our products and services,” he says.
He uses the term ‘culture carriers’ for senior and other key people. “We have grown, mainly, organically and we have promoted people internally. And with our acquisitions we have been successful because we looked after our new people too.”
– G.B.
