MANAGE COST, CONTAIN RISK, MAINTAIN VALUE. Transition Management

Transcription

1 MANAGE COST, CONTAIN RISK, MAINTAIN VALUE Transition Management

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3 COMPREHENSIVE & CUSTOMISED When transitioning your portfolio, you want to make sure all the associated costs, risks and operational issues have minimal impact. Northern Trust s Transition Management team works with you to fully understand your needs and prepare a customised plan to restructure your assets in the most cost-effective and timely manner possible.

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5 Portfolio transitions are necessary at times to achieve investment objectives. But no matter how necessary, transitions must be approached with care. An unmanaged or poorly managed transition can negatively affect performance or cause you to miss investment opportunities. We help you control the cost impact of a portfolio restructure and preserve value. We confer closely with you to develop and implement a tailored strategy to manage costs and risk whilst gaining timely exposure to your target portfolio. BENEATH THE SURFACE Many investors are aware of the iceberg of transaction costs. As with any iceberg, only a small portion is visible above the waterline. The greater danger lurks beneath the surface. Investors are aware of explicit costs such as markups, commission fees, stamp taxes and exchange fees. But implicit costs including trading and opportunity costs can total several times as much as explicit costs. 1 Based on an average commission rate of 4.1 cents per share calculated by Greenwich Associates and an average closing price of $40.21 for the Russell 1000 Index calculated by the Quantitative Services Group LLC for the three month period ending 28 February, Based on trade data from buy side institutional investors that provide transaction data for anonymous inclusion in the Quantitative Services Group LLC universe through T Cost Pro for the three month period ending 28 February, Trading Costs Market Impact Bid/Ask Spread Pre-Hedging Opportunity Costs Delay Tracking Error Information Leakage MULTI-DISCIPLINARY EXPERTISE We leverage Northern Trust s broad resources to control and minimise trading and opportunity costs. Our coordinated team of transition, trading and operations specialists in London, Chicago and New York apply rigorous project management discipline to orchestrate a smooth implementation. They centralise communication between you, your consultant, managers and custodian to control operational risk from pre-trade analysis to post-trade reporting. NORTHERN TRUST 3

6 TRANSITION MANAGEMENT PROCESS Legacy Portfolio Transition Objectives Pre-Trade Analysis Trading & Settlement Post-Trade Analysis Target Portfolio Transition Objectives We consult with you to understand the context and objectives of your transition overall allocation, benchmark and manager changes, timing concerns and risk restrictions. Pre-Trade Analysis The transition team completes a detailed analysis of the transition portfolios to identify risk characteristics, liquidity sources, projected costs and potential savings. You receive a customised timeline, trading strategy and cost projection. Trading and Settlement The transition team will coordinate all aspects of your transition including legal documentation, trading and settlement. You get daily progress reports as well as timely trade and performance data. Post-Trade Analysis You receive detailed descriptions of key results. Actual costs versus pre-trade estimates Performance versus various benchmarks Analysis of trade execution strategies Executive summary giving high-level overview of the assignment Northern Trust works to minimise implementation shortfall by reducing trading costs and managing opportunity costs. PROBABILITY OF OCCURRING Reduce variability of opportunity cost by optimizing portfolios and maintaining target portfolio exposure. Shift commission, market impact and bid/ask spread costs to the right through intelligent use of multiple liquidity sources. Unmanaged Transition Managed Transition IMPLEMENTATION SHORTFALL IN BASIS POINTS The information provided in this chart is for illustrative purposes only. It does not represent factual information. 4 NORTHERN TRUST

7 MANAGING COST We project the cost and performance consequences of different transition alternatives and develop a strategy to minimise costs and maintain value. We carefully weigh the advantages and implications of various trading strategies. Our extensive trading resources help us identify and access the most appropriate execution strategy for each asset within the transition, keeping in mind two key considerations: If executed too quickly, you will incur high trading costs. If executed too passively, you will incur high opportunity costs. In-kind Contributions Our transition specialists identify securities in the legacy portfolio that can be contributed directly into the target portfolio. Securities are priced at the close of the day of the contribution and transitioned free of commission and market impact costs. Security Crosses Where appropriate, we will cross your portfolio's sale and purchase needs with the trading activity of other investors. As the world s 3rd largest institutional index manager, Northern Trust gives you access to broad pools of securities. To minimise costs without delaying trades and increasing opportunity cost, we identify those trades we believe are prudent to cross. Market impact costs are contained by either executing at the midpoint of the bid/ask spread or by pricing the trade at the market close. Open Market Trading Northern Trust is one of the world s leading providers of asset servicing, asset management and wealth management services. Founded in 1889, we have a history of strength and stability. Today, we are a global leader in combining high-touch client service and expertise with innovative products and technology. As part of our flexible approach, we use the open market to execute residual transactions, leveraging our direct market access as well as our external relationships across all asset classes. Because we are the world s 7 th largest institutional asset manager, we can secure trade execution for you at highly favourable rates. NORTHERN TRUST 5

8 Northern Trust s multi-disciplinary team offers you expertise to manage the costs, risk and conflicts associated with portfolio transitions. MANAGING COSTS 3rd largest Liquidity institutional provider indexer MANAGING CONFLICTS Fiduciary No Trusted conflicts partner MULTI-DISCIPLINARY EXPERTISE Expert in trading, investment management, operations and project management MANAGING RISK Experienced Develop risk management optimal trading culture strategies You can feel confident knowing we apply stringent risk controls in managing portfolio transitions. MANAGING RISK Prudent risk management is a Northern Trust cornerstone. Our Transition Management team: Analyses all aspects of the transition to examine risk surrounding asset class, currency, sector, country, time zone and operational elements. Prepares a strategy that aims to neutralise these risks as quickly as possible. Deploys optimisation tools to identify and prudently trade securities that generate the greatest tracking error. Obtains early exposure to the target portfolio or benchmark to minimise opportunity costs, using market-neutral strategies, futures contracts where permissible and/or exchange-traded funds. Manages currency exposure with spot and/or forward currency contracts. Continuously monitors your transition s many moving parts from start to finish to contain operational risk. 6 NORTHERN TRUST

9 MANAGING CONFLICTS Working with us offers you peace of mind. Whether acting as your investment adviser or broker-dealer, our fiduciary approach avoids conflicts of interest. IN YOUR BEST INTEREST To minimise information leakage To remove conflicts of interest in trading To provide you with cost transparency To help you avoid potentially high opportunity costs NORTHERN TRUST DOES NOT Advertise your transition trading activity to other investors Commit capital or own an inventory of securities Pre-hedge against your anticipated trades Conceal our sources of revenue Delay a trade to meet an overly optimistic crossing target NORTHERN TRUST 7

10 As a global leader in asset management, asset servicing and fiduciary services, Northern Trust offers you peace of mind, knowing we place your interests first, whilst giving you access to the most appropriate trading strategy for each transition asset. THE OPTIMAL BLEND Because Northern Trust Is the world s 3 rd largest institutional index manager Is the world s 7th largest institutional asset manager, with direct market access Is industry-renowned for prudent risk management Is the 8th largest global custodian Ranks among the top 10 U.S. banks in foreign exchange Takes a fiduciary approach You can enjoy Access to broad crossing pools, free of market impact and bid/ask spread costs Best execution of open-market trades at highly favourable rates in global multi-asset classes Stringent risk controls to contain trading, opportunity and operational risk Expertise in settling international trades, corporate actions and proxy votes cost-effectively Strategic execution of contracts to manage international currency exposure Peace of mind, knowing your interests always come first FOR MORE INFORMATION TRANSITION MANAGEMENT GROUP London: +44 (0) Chicago: ntgi_transition_management@ntrs.com TOP-TIER PROVIDER Northern Trust has nearly 20 years of Transition Management experience and has earned industry recognition as a top-tier provider. 1 More than 400 transitions completed in 2006, with 70% comprising repeat clients Best Transition Manager 2006 Pensions Management Best in Class Ranking 2006 Transition Management Survey, PLANSPONSOR Ranked as a Top Provider Global Investor 2006 Survey of Transition Management Services 8 NORTHERN TRUST Northern Trust Corporation, 2007

11 NORTHERN TRUST LOCATIONS Amsterdam Bangalore Beijing Chicago Dublin Guernsey Hong Kong Isle of Man Jersey London Luxembourg New York Singapore Tokyo Toronto This material is directed to market counterparties and intermediate investors, it should not be relied upon by private investors. Issued by Northern Trust Global Investments Limited (NTGIL). NTGIL is authorised and regulated by the Financial Services Authority in the United Kingdom. Registered in England Registered Office: 50 Bank Street, London E14 5NT. Northern Trust Global Investments (NTGI) is the trading name for the asset management activities of the entities that belong to Northern Trust Corporation, a holding company based in Chicago. NTGI comprises of The Northern Trust Company, Northern Trust Investments, N.A., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K,, and Northern Trust Global Advisors, Inc. and its subsidiaries. Quantitative Service Group LLC shall not be liable for any errors or omissions, trading losses, any indirect, exemplary, incidental or consequential damages arising out of or otherwise relating to the matters contained in this publication.

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