CHICAGO — Northern Trust Global Investments may be late to the target-date party, but officials there say their unique passive management style could make them the belle of the ball.
As a result of the Pension Protection Act of 2006 and the use of target-date funds as a qualified default investment alternative, Northern Trust Global Investments, Chicago, launched a series of 11 target-date collective funds for midsize and large defined contribution plans in January, said James Danaher, vice president and director of defined contribution solutions. The series has been marketed to Northern Trust's existing clients, and the company will aggressively pursue new clients, Mr. Danaher said.
“We obviously have a significant amount of DC assets, but these have been as a result of our relationships with our (defined benefit) clients. Now is an appropriate time to leverage our technology and more broadly reach out to DC plans,” Mr. Danaher said.
“Knowing where the market is going in regard to (Department of Labor) regulation and fee transparency, we feel we are in a unique position” because of lower fees and a passive approach.
Nine of the 11 funds will be passively managed. Two funds will be actively managed, incorporating high-yield fixed income and short-duration equity investment options, he said.
To better diversify the portfolios, Northern Trust will use several different asset classes.
“We've taken a broader look in terms of asset classes. All of them are less traditional. We have S&P 400 and S&P 500 and international exposure, but also global REITs, commodities, high yield and TIPS,” Mr. Danaher said.
Fees play a large role in selecting target-date funds, he said. The pricing will average 17 basis points, he said, making Northern Trust competitive with fees charged by the Vanguard Group, Malvern, Pa., and other financial services shops.
“Our pricing and flexibility will make Northern's options stand out. And we do not have a break point of minimum size,” he said, explaining that there will be no minimum asset size for the options.
Northern Trust currently has $125 billion in defined contribution assets under management, he said, adding that there is a lot of interest among existing DC clients for target-date funds from Northern Trust. He would not name the clients.
To prepare for its DC push, the firm hired Mr. Danaher and two other executives last month. Brian Bursua is the new account manager for third-party DC relationships, and John LaBelle is a DC client solutions strategist.
“A huge number of target-date products have been brought to the marketplace over the last 12 to 18 months, but we feel we can best support the needs of plan fiduciaries through flexibility, pricing and dynamic asset classes,” Mr. Danaher said. “And we bring a DB quality and DB outlook to the business."
Contact Jenna Gottlieb at [email protected]
