Northern Trust Asset Management has hived off its alternatives division into a new company, 50 South Capital, which will give the alternatives managers more autonomy within the group while protecting the parent bank from direct investments in some trading activities.
For Australian and New Zealand investors, though, the upshot may be that, with the opening of an office for asset management in Melbourne in April, Northern Trust is likely to now widen its marketed product suite to include its alternatives range.
Northern Trust’s alternatives strategies have not yet been actively marketed in Australia and New Zealand, while its securities services business has had several years of increasing success in both countries. Other asset management services, such as various smart beta products, have been marketed in Australia and New Zealand from Hong Kong until this year.
The new company, named after Northern Trust’s street address at Chicago head office (50 South La Salle Street), will have its own securities licence, retain all of the alternatives employees, and be 100 per cent owned by Northern Trust, under the head of alternatives, Bob Morgan, who has become managing director of 50 South Capital.
He said last week, in answer to the question as to why the firm made the restructure: “With the Volcker Rule as a catalyst, we looked at our business and set out a plan that we believe will allow us create a unique alternatives culture, and continue to grow our asset base, while preserving the competitive advantage afforded by the relationship with Northern Trust. We view the partnership with Northern Trust as key to our past and future success.
“At the same time, our investors are looking for an entity with more autonomy in its strategic, management and investment decision making, and that is better aligned with investors. We believe the establishment of 50 South Capital as a separate and distinct registered investment adviser, coupled with the global network and stability of Northern Trust, accomplishes these goals.”
The Volcker rule is a part of the Dodd Frank Act in the US, which took effect last year and requires full compliance by July 21 this year. It restricts banks from taking certain ‘speculative’ investments used by some hedge fund strategies onto their own balance sheets, such as short-term prop trading in derivatives.
The new firm is small within the group, but growing quite rapidly. It has about US$3 billion under management and another US$1.3 billion under advice. It invests both directly and via other managers which tend to be small-mid-cap managers offering “unique and differentiated sources of return” across both hedge funds and private equity.
* Greg Bright is publisher of Investor Strategy News (Australia)