MutualFundWire.com: Northern Trust Debuts a Collective Fund Trust

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Tuesday, March 23, 2010

Northern Trust Debuts a Collective Fund Trust

Northern Trust is in talks with asset managers interested in rolling out collective funds. The Chicago-based firm formally unveiled its sub-advised collective funds trust on Monday.

Under the arrangement, Northern Trust will serve as trustee and provide custody, fund accounting and fund administration. Each collective fund will be marketed and distributed by its sub-adviser.

Like mutual funds, collective trust funds can offer daily valuation and daily participant investment direction, as well as National Security Clearing Corp. capabilities. One difference between mutual funds and collective trust funds is that the latter is available only to qualified retirement plans.

"We have been in conversation with a handful of our current clients on the custody and fund administration side," said Paul d'Ouville, global head of asset servicing product management, in an interview with The MFWire, adding that discussions began six months ago.

The new offering, he said, "has been part of our strategic planning for a couple of years." Northern Trust decided to formally roll out the platform now because "over the last 18 months, the buy side was a little distracted."

"There weren't a lot of decisions being made" amid the financial crisis, d'Ouville said, pointing out that asset managers were rethinking their strategy.

The sub-advised collective funds trust will be supported through Northern Trust's global fund services unit.

Northern Trust executives are promoting the collective trust as a cost-effective solution for asset managers launching new strategies or seeking new distribution channels.

Northern Trust's rivals in the space include Wilmington Trust and SEI.

What makes Northern Trust's offering unique is that is provides a comprehensive solution, d'Ouville said.

Company Press Release

CHICAGO, March 22, 2010 —Northern Trust announced today it has launched a new investment fund platform that will consist of a series of collective funds sub-advised by investment managers retained and overseen by Northern Trust. The Northern Trust Company Sub-Advised Collective Funds Trust will provide cost-efficient access to the U.S. private and public retirement market. Each collective fund will be marketed and distributed by its respective sub-adviser.

"Collective trust funds are increasingly seen as an attractive vehicle for investment options offered in defined-contribution and 401(k) retirement plans, due to their potential for greater pricing flexibility and other advantages," said Peter Cherecwich, head of Global Fund Services-North America and chief operating officer for Corporate & Institutional Services at Northern Trust. "Asset management firms that aim to grow in this market can now be considered for our collective trust fund structure, under which Northern acts as trustee as well as providing custody, fund accounting and fund administration."

As is the case with registered mutual funds, collective trust funds can offer daily valuation and daily participant investment direction, as well as National Security Clearing Corp. trading capabilities, combined with the advantages of commingling scale. Unlike registered funds that are available to the general public, however, collective trust funds are available only to tax-exempt 401(k), pension, profit-sharing and governmental retirement plans. Collective trust funds also typically have a lower cost structure than mutual funds, making them an attractive alternative for plan sponsors with fiduciary responsibility.

Northern Trust's Sub-Advised Collective Funds Trust will be supported through the Global Fund Services unit ("GFS"), which has been servicing investment manager and fund company clients for more than 30 years and has experience supporting a wide range of complex investment strategies. Northern Trust's GFS services more than 430 investment managers around the globe encompassing approximately 4,000 funds. As trustee of the funds, Northern Trust will provide due diligence review of all sub-advisers as well as transparent reporting to plan sponsors and record keepers.

"In today's increasingly risk- and cost-conscious market, we can offer a fund product that combines efficiency with a thorough oversight process," said Paul d'Ouville, global head of asset servicing product management for Northern Trust. "For asset management firms launching new strategies or seeking new distribution channels, our collective trust presents a cost-effective solution to help achieve their business goals."