Frederick “Rick” Waddell admittedly wears a lot of hats for Northern Trust Corp. He’s the current president and chief operating officer of the Chicago-based banking company, as well as the acting president of its asset management business, Northern Trust Global Investments. And at year’s end, Mr. Waddell will add yet another cap when he takes over as chief executive officer of the entire company, replacing William A. Osborn, who has held the post for the past 12 years. Mr. Waddell, who has worked his way up the ranks at Northern over the last 30 years, will sit atop a company that is one the largest custodians and assets managers in the world. But even with more than $4.1 trillion in assets under custody, as well as $761 billion in assets under management, Mr. Waddell still aspires to continue growing the company significantly, both in the United States and overseas.
When you become responsible for running the entire company next year, what’s your first order of business? First thing I’m not going to do is change the strategy and the course of the company. It’s been well established — our focus on the personal market in the U.S. and our institutional asset servicing and the asset management businesses — we’re not going to change that at all.
So we shouldn’t expect to see a transformational acquisition as soon as you take over? I’m not going to look to do a transformational acquisition. We’re going to look to grow the business off of what we have in place right now. We’ve positioned the company in very good, strong organic growth markets. Right now, it really is all about execution and getting better execution. So I want to get our management group focused on what the metrics are around better execution. It’s really a continuation of the strategies that we have had for years.
If it’s organic growth that will drive the business, where do you see the most opportunities? Globally, there are tremendous opportunities for our business. We now have about 30% of our people outside of the U.S., and there are roughly 11,000 people in the company. We are at the point where roughly 35% of our bottom line comes from our global and international businesses — in 1992, roughly 7% of net income came from outside the U.S. The fastest growing part of the bank is what we are doing outside of the U.S.
Where your do you see the most potential, and how have you positioned the company to capitalize accordingly? We look at the world in three regions - (U.S.; U.S., Middle East and Africa; and Asia-Pacific. We've operated in each of these for more than 20 years. We have built up significant operations in London, Limerick, Amsterdam and Luxembourg, to name a few. We did the largest acquisition in the history of the organization two years ago when we bought the fund administration business of Barings (Baring Asset Management’s Financial Services Group) We want to expand our footprint in the overall EMEA region as well, and the Middle East is of great interest. We would also love have a bank in Germany. The Nordic region is an area of particular strength, but we’ll continue to expand our footprint there, too.
Which of your businesses is more developed overseas, asset servicing or investment management? Both are well developed, but the banking and asset servicing business is further along. We do, however, expect asset management in the EMEA region to show a lot of growth over the next several years.
And what types of investment strategies do you think will drive this growth? Our strengths lie around short duration, passive enhanced capabilities and manager-of-managers — we’re going to play to those strengths as we look outside the U.S.
Looking at the U.S. itself, what do you plan to do here to enhance the business? We want to obviously leverage across our strengths in all markets, but in the U.S domestic market there are a couple of initiatives already underway. We want to continue to build out our quantitative actively managed business, leveraging off our index business. We’ve brought a team in and had good asset growth so far, but the problem there has been the lack of a three- to five-year track record. We’re building it and we’re doing all we can, given that the track record really opens a lot of doors. We’ll get there in another year or so, but we like what we see so far.
Also, our manager-of-managers business has had tremendous growth, and we’re continuing to focus on this area for even more new business. It’s been one of the most rapidly growing parts of our investment management business. And we are now managing more than $40 billion through this business, Northern Trust Global Advisors... We have been getting a lot of traction from endowments, foundations, pension and union plans, some that are as small as $50 million, while our largest client has about $3 billion. The smaller, middle-market defined benefit plans have been the early adopters, along with smaller endowments and foundations, but it’s now become attractive to others as well.
Aside from existing strategies, what else are you focusing on now that you think will play a bigger role next year? There are other areas we are focused on, but are still in the early stages, such as liability-driven investment and 130/30 strategies. Both are incubating and, over the long term, are going to be products that will have appeal to institutions. These are products that the market wants to hear more about, and we’re in active discussions with a number of plan sponsors on both.
You’ve ruled out a transformational deal, but generally, what is your view of acquisitions? Does it differ from the firm’s view historically? We typically build. We want to leverage the scale that we have and continue to distribute them in the right way. If we want to accelerate that, I can make an acquisition. Only, our view of acquisitions is to get us into a new market, or to bring in a capability that we don’t currently have. I wouldn’t ignore it, but it’s not the preferred or the No. 1 route that we would pursue.... We all view acquisition as extensions of footprint or product capabilities.... We might be open to joint ventures overseas, however, if it got us the right product capability and it was under the Northern Trust brand.
When you take over as CEO of the overall company, you will still be the acting president of Northern Trust Global Investments. How is that search going and what is your timetable for bringing a new person on board? One of my top priorities is filling that post; I am wearing a lot of hats around here now. We’re looking at both internal and external candidates, and we are in the process of vetting a number of these candidates right now. The search is moving along nicely, and I expect to have someone in this position sometime during the first quarter of next year.
(updated with correction)