1 00:00:08,240 --> 00:00:10,719 This is Faster Forward from Northern Trust Asset 2 00:00:10,719 --> 00:00:11,219 Servicing. 3 00:00:11,599 --> 00:00:14,505 In this podcast, we explore stories, insights, and 4 00:00:14,505 --> 00:00:17,225 lessons learned from leaders and innovators who are 5 00:00:17,225 --> 00:00:19,484 driving the transformation across industries. 6 00:00:20,265 --> 00:00:23,144 I'm Grant Jahnzi, head of client solutions, banking, 7 00:00:23,144 --> 00:00:25,704 and markets Americas at Northern Trust, and I'll 8 00:00:25,704 --> 00:00:27,804 be your host for Fast For Forward podcast 9 00:00:27,864 --> 00:00:30,199 today. Joining me is Melanie Pickett. 10 00:00:30,739 --> 00:00:33,299 She's head of asset servicing Americas at Northern 11 00:00:33,299 --> 00:00:36,020 Trust. And today, Melanie and I will be 12 00:00:36,020 --> 00:00:38,899 diving into our recent global asset owner peer 13 00:00:38,899 --> 00:00:39,719 study titled 14 00:00:40,100 --> 00:00:41,559 asset owners in focus, 15 00:00:41,945 --> 00:00:45,065 which explores how asset owners are navigating investment 16 00:00:45,065 --> 00:00:45,565 strategies, 17 00:00:45,945 --> 00:00:49,885 operational challenges, and emerging opportunities in a dynamic 18 00:00:50,105 --> 00:00:50,605 market. 19 00:00:51,225 --> 00:00:54,105 The study delivers valuable insights designed to help 20 00:00:54,105 --> 00:00:57,245 asset owners benchmark their practices against industry trends. 21 00:00:58,070 --> 00:01:00,390 Melanie, welcome. I'm really excited to have you 22 00:01:00,390 --> 00:01:02,629 here today. Thanks, Grant. We've worked together a 23 00:01:02,629 --> 00:01:04,469 long time, and you've got a lot of 24 00:01:04,469 --> 00:01:06,790 experience with asset owners. But before we get 25 00:01:06,790 --> 00:01:08,310 into the survey, can you give the audience 26 00:01:08,310 --> 00:01:10,334 a little bit of your background? Sure. So 27 00:01:10,334 --> 00:01:12,174 I've been at Northern a little over eight 28 00:01:12,174 --> 00:01:14,814 years, focused first on building out a business 29 00:01:14,814 --> 00:01:16,894 that we call front office solutions, which helps 30 00:01:16,894 --> 00:01:19,375 our asset owners who have complex multi asset 31 00:01:19,375 --> 00:01:20,114 class portfolios 32 00:01:20,655 --> 00:01:22,894 deal with their data management and portfolio management 33 00:01:22,894 --> 00:01:23,969 challenges a bit better. 34 00:01:24,689 --> 00:01:26,790 Since then, I have taken over, 35 00:01:27,969 --> 00:01:29,730 oversight of more and more of the custody 36 00:01:29,730 --> 00:01:32,450 function. So now looking at asset servicing across 37 00:01:32,450 --> 00:01:35,010 both asset managers and asset owners. Yeah. Across 38 00:01:35,010 --> 00:01:35,670 our entire, 39 00:01:36,130 --> 00:01:37,645 client base. And so prior prior to that, 40 00:01:37,645 --> 00:01:39,405 I was actually a client, which is where 41 00:01:39,405 --> 00:01:41,725 you and I first met. I was the 42 00:01:41,725 --> 00:01:44,204 chief operating officer at a large endowment. So 43 00:01:44,204 --> 00:01:46,045 talk about this survey a little bit. You 44 00:01:46,045 --> 00:01:48,145 know, what types of asset owners were surveyed? 45 00:01:48,444 --> 00:01:50,525 You know, what was the breakdown by, type 46 00:01:50,525 --> 00:01:52,409 of client and and region? Sure. So the 47 00:01:52,409 --> 00:01:54,090 goal of the survey is to do it 48 00:01:54,090 --> 00:01:56,269 annually. It's part of our a suite platform, 49 00:01:56,650 --> 00:01:58,909 which is where we're offering content and community 50 00:01:59,209 --> 00:02:00,590 specifically for allocators. 51 00:02:01,209 --> 00:02:02,409 There were a 80 52 00:02:02,409 --> 00:02:03,230 senior leaders, 53 00:02:03,689 --> 00:02:06,215 each with at least a billion in AUM, 54 00:02:06,215 --> 00:02:08,375 but over half of those had over 10,000,000,000 55 00:02:08,375 --> 00:02:09,115 in AUM. 56 00:02:09,495 --> 00:02:12,134 And the largest group of responders were actually 57 00:02:12,134 --> 00:02:13,194 portfolio managers. 58 00:02:14,215 --> 00:02:14,715 80 59 00:02:15,094 --> 00:02:17,254 of those in North America, 60 in EMEA, 60 00:02:17,254 --> 00:02:19,689 and 40 in APAC. And the responses that 61 00:02:19,689 --> 00:02:22,030 we got were across pension funds, OCIOs, 62 00:02:22,730 --> 00:02:26,409 and multi managers, family offices, endowments, foundations, and 63 00:02:26,409 --> 00:02:28,409 sovereign wealth funds. So, really, this is a 64 00:02:28,409 --> 00:02:30,090 good slice of a lot of different asset 65 00:02:30,090 --> 00:02:32,485 owners on a global basis. So as part 66 00:02:32,485 --> 00:02:34,985 of our work to to do these surveys 67 00:02:35,044 --> 00:02:37,604 and to understand asset owners and their approach 68 00:02:37,604 --> 00:02:38,985 to the markets and investments, 69 00:02:39,844 --> 00:02:42,084 how did this survey kind of contrast to 70 00:02:42,084 --> 00:02:43,604 prior ones that we've led? Were there any 71 00:02:43,604 --> 00:02:45,240 new trends that emerged that you saw? Yeah. 72 00:02:45,400 --> 00:02:46,439 I mean, I think it was much more 73 00:02:46,439 --> 00:02:48,599 focused on a couple of key areas. Operational 74 00:02:48,599 --> 00:02:49,099 efficiency 75 00:02:49,639 --> 00:02:51,159 was one thing that we hear all the 76 00:02:51,159 --> 00:02:52,760 time from clients now, and I think that 77 00:02:52,760 --> 00:02:54,439 has to also do with data and risk 78 00:02:54,439 --> 00:02:56,120 management, which we saw come through a lot 79 00:02:56,120 --> 00:02:56,860 in the survey. 80 00:02:57,159 --> 00:02:59,159 Liquidity is top of mind for everyone, and 81 00:02:59,159 --> 00:03:01,034 and that was echoed in the survey certainly. 82 00:03:01,034 --> 00:03:02,415 And the survey was actually, 83 00:03:02,875 --> 00:03:05,194 taken right prior to the election. And so 84 00:03:05,194 --> 00:03:07,215 it's been interesting to sort of see how, 85 00:03:07,594 --> 00:03:09,675 that has certainly played out more for our 86 00:03:09,675 --> 00:03:11,915 clients. And then AI, every client that walks 87 00:03:11,915 --> 00:03:13,275 in the door is looking to know what 88 00:03:13,275 --> 00:03:15,110 each other are doing on AI. And Those 89 00:03:15,110 --> 00:03:16,389 are all big topics. Let's I'm gonna start 90 00:03:16,389 --> 00:03:18,389 with the liquidity one first. It came up 91 00:03:18,389 --> 00:03:19,849 frequently in the survey responses. 92 00:03:20,469 --> 00:03:22,549 And to your point, since the survey was 93 00:03:22,549 --> 00:03:25,109 conducted late last year, it's an even bigger 94 00:03:25,109 --> 00:03:26,389 topic. I see it all the time in 95 00:03:26,389 --> 00:03:27,930 in my conversations with clients. 96 00:03:28,745 --> 00:03:30,665 I was really surprised. I mean, the average 97 00:03:30,665 --> 00:03:32,825 cash balance that the respondents were holding was 98 00:03:32,825 --> 00:03:33,724 11%. 99 00:03:33,865 --> 00:03:35,865 In APAC, it's around 15% 100 00:03:35,865 --> 00:03:36,844 on on average. 101 00:03:37,465 --> 00:03:39,405 What was the some of the key findings 102 00:03:39,465 --> 00:03:42,770 from the the survey on liquidity, and why 103 00:03:42,770 --> 00:03:45,330 is liquidity in focus now? Right. So 60% 104 00:03:45,330 --> 00:03:47,090 of the asset owners in the survey said 105 00:03:47,090 --> 00:03:49,250 that liquidity has become more important than it 106 00:03:49,250 --> 00:03:51,330 had been a year prior. And I think 107 00:03:51,330 --> 00:03:52,870 some of that has to do with volatility. 108 00:03:53,090 --> 00:03:55,275 So asset owners tend to freeze a little 109 00:03:55,275 --> 00:03:57,834 bit when, conditions are volatile just until they 110 00:03:57,834 --> 00:03:59,995 understand where the opportunity sets are and how 111 00:03:59,995 --> 00:04:00,474 much, 112 00:04:00,875 --> 00:04:02,814 illiquidity risk they want to take. 113 00:04:03,275 --> 00:04:05,995 The US political environment certainly has caused a 114 00:04:05,995 --> 00:04:07,995 lot of our asset owners to need more 115 00:04:07,995 --> 00:04:08,495 liquidity 116 00:04:08,794 --> 00:04:11,090 just in some of the challenges facing their 117 00:04:11,090 --> 00:04:11,590 institutions 118 00:04:12,449 --> 00:04:14,370 directly. But I also think more and more 119 00:04:14,370 --> 00:04:17,649 clients are taking their equity exposure on a 120 00:04:17,649 --> 00:04:20,209 synthetic basis, and so many of them will 121 00:04:20,209 --> 00:04:21,889 have cash underneath that, 122 00:04:22,975 --> 00:04:25,215 program, a portable alpha like program. And, and 123 00:04:25,215 --> 00:04:27,694 so we're seeing asset owners increasingly using that 124 00:04:27,694 --> 00:04:28,194 strategy. 125 00:04:28,735 --> 00:04:31,295 So, again, I'm I'm still surprised by how 126 00:04:31,295 --> 00:04:33,215 much cash some of these clients are holding. 127 00:04:33,215 --> 00:04:35,134 Is it because of synthetics or how much 128 00:04:35,134 --> 00:04:37,535 are the private markets and the potential for 129 00:04:37,535 --> 00:04:39,939 capital calls playing into the higher cash balances, 130 00:04:39,939 --> 00:04:41,540 Melanie? Yeah. I mean, some of our clients 131 00:04:41,540 --> 00:04:43,459 and some asset owners certainly have a a 132 00:04:43,459 --> 00:04:46,339 policy restriction, you know, enforcing that they hold 133 00:04:46,339 --> 00:04:48,419 a certain amount of their unfunded commitments in 134 00:04:48,419 --> 00:04:50,339 cash. But we're also seeing a lack of 135 00:04:50,339 --> 00:04:51,639 circularity in, 136 00:04:52,019 --> 00:04:54,985 the cash flow of those assets. Right? So 137 00:04:55,125 --> 00:04:57,444 many of our asset owners will depend on 138 00:04:57,444 --> 00:05:00,004 those GPs returning capital in order to make 139 00:05:00,004 --> 00:05:01,685 their capital calls. Now they're having to fund 140 00:05:01,685 --> 00:05:04,004 them directly from cash. Interesting. I found it 141 00:05:04,004 --> 00:05:06,745 fascinating, the survey, that roughly half of respondents 142 00:05:06,884 --> 00:05:07,620 said that 143 00:05:08,019 --> 00:05:10,279 managing cash was now very much a strategic 144 00:05:10,660 --> 00:05:12,019 Yeah. And I think it's you know, the 145 00:05:12,019 --> 00:05:14,100 interest rate environment certainly has helped. Right? But 146 00:05:14,100 --> 00:05:16,419 we definitely see our clients managing it as 147 00:05:16,419 --> 00:05:18,579 an asset class, which we don't always have 148 00:05:18,579 --> 00:05:20,899 happening. That hasn't happened in years. Yeah. Certainly 149 00:05:20,899 --> 00:05:22,500 a higher interest rate environment is part of 150 00:05:22,500 --> 00:05:24,904 that. So you mentioned volatility. Let's talk a 151 00:05:24,904 --> 00:05:27,165 little bit about volatility and and how that, 152 00:05:27,625 --> 00:05:30,524 you know, respondents are thinking about volatility. So 153 00:05:30,665 --> 00:05:33,084 how are asset owners adjusting their asset allocation 154 00:05:33,144 --> 00:05:33,644 strategies 155 00:05:34,105 --> 00:05:36,024 in the face of increasing uncertainty? What did 156 00:05:36,024 --> 00:05:37,470 you find in the in the survey? Yeah. 157 00:05:37,470 --> 00:05:38,410 I mean, they're maintaining 158 00:05:38,790 --> 00:05:41,750 diversified portfolios. We know that. Right? So the, 159 00:05:41,750 --> 00:05:44,889 you know, fixed income and equity asset allocations, 160 00:05:45,350 --> 00:05:46,949 tend to be where we expect them to 161 00:05:46,949 --> 00:05:49,270 be, although a little higher in The US 162 00:05:49,270 --> 00:05:51,750 again on equities, and equity risk than the 163 00:05:51,750 --> 00:05:52,490 other regions. 164 00:05:52,964 --> 00:05:55,125 There is continued to be a growing focus 165 00:05:55,125 --> 00:05:57,524 on alternatives, and we see that across our 166 00:05:57,524 --> 00:05:59,524 client base no matter what type of shape 167 00:05:59,524 --> 00:06:00,824 or size of the client. 168 00:06:01,205 --> 00:06:03,365 But the nature of the alternative investments are 169 00:06:03,365 --> 00:06:05,365 changing, right? And so we have seen a 170 00:06:05,365 --> 00:06:07,225 dramatic increase, of course, in 171 00:06:08,199 --> 00:06:11,480 direct real estate, direct infrastructure, as well as 172 00:06:11,480 --> 00:06:12,300 private credit. 173 00:06:13,319 --> 00:06:15,000 I think that the other thing that came 174 00:06:15,000 --> 00:06:17,720 out, is that the number is 68% 175 00:06:17,720 --> 00:06:20,300 for hedge funds, absolute return, and other diversifiers. 176 00:06:20,439 --> 00:06:21,960 And I think that number is quite low 177 00:06:21,960 --> 00:06:23,834 probably compared to where it used to be. 178 00:06:24,394 --> 00:06:26,394 And so we have certainly seen that play 179 00:06:26,394 --> 00:06:28,894 out in, you know, hedge fund fundraising, 180 00:06:29,914 --> 00:06:30,414 statistics. 181 00:06:30,954 --> 00:06:32,714 I think the the thing that's happening that's 182 00:06:32,714 --> 00:06:35,134 really interesting is, one, there's an asset allocation 183 00:06:35,194 --> 00:06:37,930 shift happening with respect to looking more at 184 00:06:37,930 --> 00:06:40,329 a detailed level at exposures and thinking about 185 00:06:40,329 --> 00:06:42,669 managing on a total fund basis versus, 186 00:06:43,209 --> 00:06:45,610 you know, a strategic asset allocation where the 187 00:06:45,610 --> 00:06:46,669 buckets were pretty, 188 00:06:47,209 --> 00:06:48,509 large and and broad. 189 00:06:48,970 --> 00:06:50,490 That's part of it. And then I think, 190 00:06:50,810 --> 00:06:52,584 many of our clients have said they can 191 00:06:52,584 --> 00:06:53,324 no longer, 192 00:06:54,345 --> 00:06:56,985 think really long term given how volatile things 193 00:06:56,985 --> 00:06:59,305 are. And so where an asset owner used 194 00:06:59,305 --> 00:07:01,064 to set out a ten year capital markets 195 00:07:01,064 --> 00:07:03,064 assumption and think about their asset allocation, that 196 00:07:03,064 --> 00:07:04,925 way they're starting to think at a lower, 197 00:07:06,550 --> 00:07:08,509 a lower time period. Yeah. We have seen 198 00:07:08,509 --> 00:07:11,069 some tactical shifts that clients are making, especially 199 00:07:11,069 --> 00:07:13,310 in response to some of the secular dynamics 200 00:07:13,310 --> 00:07:14,990 that are emerging in the market. So it's 201 00:07:14,990 --> 00:07:15,490 interesting. 202 00:07:15,870 --> 00:07:19,275 And to your point on the differences in 203 00:07:19,275 --> 00:07:20,875 the some of the regions with their equity 204 00:07:20,875 --> 00:07:22,814 allocation, I remember in the survey, 205 00:07:23,115 --> 00:07:24,095 the North American 206 00:07:24,395 --> 00:07:26,875 respondents had on average 49 207 00:07:26,875 --> 00:07:29,754 of their allocation in public equities versus about 208 00:07:29,754 --> 00:07:30,735 34% 209 00:07:31,120 --> 00:07:33,620 for EMEA. I found that disparity quite interesting. 210 00:07:33,839 --> 00:07:35,600 Yeah. I think some of the institutions that 211 00:07:35,600 --> 00:07:37,779 we serve as clients have aggressive 212 00:07:38,160 --> 00:07:40,160 growth goals, you know, and they're if in 213 00:07:40,160 --> 00:07:41,919 the case of an endowment trying to meet 214 00:07:41,919 --> 00:07:43,919 their spending distribution, but make sure that they're 215 00:07:43,919 --> 00:07:45,919 growing and preserving the capital on top of 216 00:07:45,919 --> 00:07:47,975 that. And so I think that on on 217 00:07:47,975 --> 00:07:50,055 balance, they take a bit more equity risk 218 00:07:50,055 --> 00:07:51,814 than we see in other parts of the 219 00:07:51,814 --> 00:07:54,214 world. Interesting. Yeah. It was a big difference 220 00:07:54,214 --> 00:07:57,335 between those, those two regions. Significant. Let's turn 221 00:07:57,335 --> 00:07:58,774 to cost management now. I mean, that was 222 00:07:58,774 --> 00:08:00,055 another big theme that came out of the 223 00:08:00,055 --> 00:08:02,375 survey that was really fascinating. It was noted 224 00:08:02,375 --> 00:08:05,810 as among the top investment challenges, second only 225 00:08:06,189 --> 00:08:08,590 to optimizing asset allocation strategies that we just 226 00:08:08,590 --> 00:08:12,029 talked about. How are asset owners managing costs? 227 00:08:12,189 --> 00:08:14,590 Where are outsourcing solutions playing a role in 228 00:08:14,590 --> 00:08:15,985 that? Yeah. I mean, I think like any 229 00:08:15,985 --> 00:08:17,824 business these days, they're thinking about how they're 230 00:08:17,824 --> 00:08:18,884 managing expenses, 231 00:08:19,185 --> 00:08:20,564 and many of them have, 232 00:08:21,024 --> 00:08:23,024 limits on FTE that they can hire, and 233 00:08:23,024 --> 00:08:25,524 so they're looking to their service providers more. 234 00:08:25,745 --> 00:08:28,064 We see a couple of shifts. One, we 235 00:08:28,064 --> 00:08:31,330 see clients, looking to have fewer deeper relationships 236 00:08:31,330 --> 00:08:33,410 with service providers, same thing that they're doing 237 00:08:33,410 --> 00:08:36,129 in their portfolio, fewer deeper relationships with investment 238 00:08:36,129 --> 00:08:39,009 managers, really to take advantage of those economies 239 00:08:39,009 --> 00:08:40,690 of scale and take advantage of the breadth 240 00:08:40,690 --> 00:08:41,509 of their relationship. 241 00:08:41,985 --> 00:08:43,585 I think the other thing that we're seeing 242 00:08:43,585 --> 00:08:45,825 is much more, demand for what I would 243 00:08:45,825 --> 00:08:47,125 call middle office services 244 00:08:47,664 --> 00:08:50,304 for asset owners. So in the asset manager 245 00:08:50,304 --> 00:08:52,544 space for decades, we've had an investment office 246 00:08:52,544 --> 00:08:53,605 outsourcing product 247 00:08:54,000 --> 00:08:56,480 that's very specific to the way that traditional 248 00:08:56,480 --> 00:08:59,120 asset managers behave. What we're doing later this 249 00:08:59,120 --> 00:09:00,879 year is rolling out a set of middle 250 00:09:00,879 --> 00:09:03,519 office services that are bespoke to asset owners. 251 00:09:03,519 --> 00:09:06,160 So those services recognize, you know, some of 252 00:09:06,160 --> 00:09:09,120 the patterns and challenges and particular technology and 253 00:09:09,120 --> 00:09:11,524 needs of the asset owners and, will help 254 00:09:11,524 --> 00:09:14,245 them, you know, append or augment their staff 255 00:09:14,245 --> 00:09:14,985 in that way. 256 00:09:15,445 --> 00:09:18,345 So we see that around, things, you know, 257 00:09:18,404 --> 00:09:20,485 on the very back end from things like 258 00:09:20,485 --> 00:09:20,985 reconciliation 259 00:09:21,684 --> 00:09:24,004 and data entry and administration, but all the 260 00:09:24,004 --> 00:09:26,200 way through to in the front office, you 261 00:09:26,200 --> 00:09:27,960 know, a few of our clients going live 262 00:09:27,960 --> 00:09:30,600 with integrated trading solutions, which is our our 263 00:09:30,600 --> 00:09:33,639 outsourced trading offering. Yeah. We're seeing that with 264 00:09:33,639 --> 00:09:36,279 more internally managed portfolios, and the survey talked 265 00:09:36,279 --> 00:09:37,580 about that. I I believe 266 00:09:38,054 --> 00:09:40,215 almost two thirds of respondents manage at least 267 00:09:40,215 --> 00:09:41,595 some of their cash internally, 268 00:09:42,134 --> 00:09:45,095 and around 40% manage some portion of equities 269 00:09:45,095 --> 00:09:46,075 or fixed income 270 00:09:46,455 --> 00:09:48,774 in the public sectors at least internally. And 271 00:09:48,774 --> 00:09:50,615 that's obviously where we've got, I think, of 272 00:09:50,615 --> 00:09:53,289 a a strong ability to support with both 273 00:09:53,289 --> 00:09:55,949 middle office outsourcing as well as outsource trading, 274 00:09:56,409 --> 00:09:57,850 because the goal of those is, you know, 275 00:09:57,850 --> 00:09:59,949 when you manage those internally is cost management. 276 00:10:00,009 --> 00:10:01,709 And the more you can do through outsourcing, 277 00:10:01,769 --> 00:10:04,329 it's gonna even enhance those cost savings even 278 00:10:04,329 --> 00:10:06,909 further. That's absolutely right. You know, we've talked 279 00:10:07,024 --> 00:10:08,384 before about the trend of a lot of 280 00:10:08,384 --> 00:10:10,625 our asset owners thinking about paying the GPS 281 00:10:10,625 --> 00:10:12,325 or the managers for their 282 00:10:12,705 --> 00:10:14,865 IP their IP only and then implementing the 283 00:10:14,865 --> 00:10:15,684 trades themselves, 284 00:10:16,225 --> 00:10:18,865 being able to take advantage of, the ability 285 00:10:18,865 --> 00:10:20,544 to risk up, risk down, you know, or 286 00:10:20,544 --> 00:10:23,200 shift allocations between managers in an in an 287 00:10:23,200 --> 00:10:26,160 easier way. We're definitely seeing that happen across 288 00:10:26,160 --> 00:10:28,639 our largest, more sophisticated asset owners. I think 289 00:10:28,639 --> 00:10:30,639 that trend's still early days too. We'll probably 290 00:10:30,639 --> 00:10:32,000 see more of that of that type of 291 00:10:32,000 --> 00:10:34,720 trend. Let's pivot also to the private market 292 00:10:34,720 --> 00:10:35,220 instruments. 293 00:10:35,695 --> 00:10:37,615 What did the survey find about private equity 294 00:10:37,615 --> 00:10:38,595 and private credit? 295 00:10:38,975 --> 00:10:40,334 So 67% 296 00:10:40,334 --> 00:10:42,414 invest in private equity, 49% 297 00:10:42,414 --> 00:10:43,634 invest in private credit. 298 00:10:44,254 --> 00:10:46,195 We still see a surge in interest, 299 00:10:46,575 --> 00:10:48,254 and that, I would say, has been, you 300 00:10:48,254 --> 00:10:50,959 know, a significant part of some asset owners 301 00:10:50,959 --> 00:10:53,679 portfolios for decades, whereas others are just starting 302 00:10:53,679 --> 00:10:55,039 to dip their toe into it. So our 303 00:10:55,039 --> 00:10:57,620 public funds, for example, may have had statutory 304 00:10:57,679 --> 00:10:58,179 limits, 305 00:10:58,720 --> 00:11:01,440 on their alternative investments in the past. The 306 00:11:01,440 --> 00:11:04,079 long term nature of these investments obviously line 307 00:11:04,079 --> 00:11:06,195 up really well with the large asset owners 308 00:11:06,195 --> 00:11:08,055 needs from an institutional perspective. 309 00:11:08,835 --> 00:11:11,315 Interesting. Did cryptocurrency come up at all in 310 00:11:11,315 --> 00:11:13,154 this survey? Probably the biggest surprise for me, 311 00:11:13,154 --> 00:11:15,394 which it says that 21% 312 00:11:15,394 --> 00:11:17,475 of those who allocate to private markets have 313 00:11:17,475 --> 00:11:20,455 some sort of exposure to crypto or digital 314 00:11:20,514 --> 00:11:21,570 tokenized investments. 315 00:11:22,049 --> 00:11:23,649 Wow. That's awesome. Not expect the number to 316 00:11:23,649 --> 00:11:25,350 be that large based on what we're seeing. 317 00:11:25,570 --> 00:11:26,629 That's really fascinating. 318 00:11:27,090 --> 00:11:28,929 That's a high number. I'm surprised too by 319 00:11:28,929 --> 00:11:31,410 that. I mean, I think, you know, we 320 00:11:31,410 --> 00:11:33,730 saw certainly a lot of interest pre FTX. 321 00:11:33,730 --> 00:11:36,210 I think the FTX debacle really scared a 322 00:11:36,210 --> 00:11:38,504 lot of people from, thinking about how they 323 00:11:38,504 --> 00:11:40,764 can due diligence the risk of the assets. 324 00:11:41,304 --> 00:11:43,865 And so it's been slowly climbing back since 325 00:11:43,865 --> 00:11:46,585 then. Obviously, with the repeal of SAB one 326 00:11:46,585 --> 00:11:47,404 twenty one, 327 00:11:47,785 --> 00:11:49,785 it makes it easier to custody at a 328 00:11:49,785 --> 00:11:52,179 traditional bank like ours, and, I think we'll 329 00:11:52,179 --> 00:11:53,299 see more and more of it. But I 330 00:11:53,379 --> 00:11:54,899 my guess is if we dug into that 331 00:11:54,899 --> 00:11:57,379 21%, it would be largely ETF exposure at 332 00:11:57,379 --> 00:11:59,779 this point. Another topic. You mentioned this at 333 00:11:59,779 --> 00:12:01,860 the outset, AI. Everyone wants to talk about 334 00:12:01,860 --> 00:12:04,184 AI, figure out what everyone else is doing. 335 00:12:04,264 --> 00:12:06,345 So let's talk about AI and technology more 336 00:12:06,345 --> 00:12:08,504 broadly. What kind of general trends and findings 337 00:12:08,504 --> 00:12:11,004 to the survey find about technology and automation? 338 00:12:11,065 --> 00:12:13,705 Yes. So 79% of the respondents are increasing 339 00:12:13,705 --> 00:12:17,004 technology adoption specifically to improve their operational efficiency, 340 00:12:17,384 --> 00:12:18,585 and 57% 341 00:12:18,585 --> 00:12:19,804 are increasing automation. 342 00:12:20,639 --> 00:12:22,639 So what we heard back loud and clear 343 00:12:22,639 --> 00:12:24,159 is the same thing we hear from clients 344 00:12:24,159 --> 00:12:26,559 day to day, which is the act of 345 00:12:26,559 --> 00:12:29,039 managing the data across all of the asset 346 00:12:29,039 --> 00:12:31,919 classes that they're invested in, managing the data 347 00:12:31,919 --> 00:12:35,024 across alternative investments and the really disparate sets 348 00:12:35,024 --> 00:12:37,825 of information they receive from their GPs is 349 00:12:37,825 --> 00:12:40,544 difficult. Just handling the flow of documents and 350 00:12:40,544 --> 00:12:43,264 communications from their GPs is often a big 351 00:12:43,264 --> 00:12:45,504 challenge. And so we've been working to develop 352 00:12:45,504 --> 00:12:48,169 products, obviously, that help our clients with taking 353 00:12:48,169 --> 00:12:50,089 all of that inbound information and making sure 354 00:12:50,089 --> 00:12:51,850 that we digitize the data as much as 355 00:12:51,850 --> 00:12:53,850 we can. That's something we've been doing in 356 00:12:53,850 --> 00:12:56,329 the alternative space for three years or so 357 00:12:56,329 --> 00:12:58,730 now, and we're starting to see it increase 358 00:12:58,730 --> 00:12:59,929 our scale, but also, 359 00:13:00,329 --> 00:13:02,625 increase our quality and our timeliness and our, 360 00:13:02,945 --> 00:13:04,644 data postings to the clients. 361 00:13:05,264 --> 00:13:06,904 Oh, that's great stuff. It's interesting seeing the 362 00:13:06,945 --> 00:13:08,465 how these trends are playing out because the 363 00:13:08,465 --> 00:13:10,865 technology and AI are advancing so much. Yeah. 364 00:13:10,865 --> 00:13:12,625 So I think everyone has the same challenge 365 00:13:12,625 --> 00:13:14,304 in the space, which is the data that 366 00:13:14,304 --> 00:13:15,684 they hold is really confidential. 367 00:13:16,009 --> 00:13:18,809 Right? And so either they've signed contractual agreements 368 00:13:18,809 --> 00:13:21,210 with general partners or investment managers. They know 369 00:13:21,210 --> 00:13:22,830 they're probably sitting on, 370 00:13:23,289 --> 00:13:26,029 some nonpublic information and pieces of the program. 371 00:13:26,490 --> 00:13:28,730 And so I think everyone's grappling with you 372 00:13:28,730 --> 00:13:30,825 can't just throw that stuff into a public 373 00:13:30,884 --> 00:13:33,285 model and, you know, have chat GPT or 374 00:13:33,285 --> 00:13:34,985 something analyze that for you. 375 00:13:35,365 --> 00:13:38,004 I think our institution, no clients take their 376 00:13:38,004 --> 00:13:40,485 their data security, their data privacy very seriously 377 00:13:40,485 --> 00:13:42,339 as do we. And so I think that, 378 00:13:42,339 --> 00:13:43,879 you know, as we see more, 379 00:13:44,339 --> 00:13:45,399 private models, 380 00:13:45,779 --> 00:13:47,860 and private tools around models, I think we'll 381 00:13:47,860 --> 00:13:50,259 see the adoption increase. Like AI agents that 382 00:13:50,259 --> 00:13:52,259 work within a a framework. That's right. Yeah. 383 00:13:52,259 --> 00:13:54,199 Because it's still you know, it's not where 384 00:13:54,339 --> 00:13:55,860 you think it should be in terms of 385 00:13:55,860 --> 00:13:57,159 adoption at this point. 386 00:13:57,595 --> 00:13:59,835 We see things like search on steroids or 387 00:13:59,835 --> 00:14:01,674 we see things where, you know, processes are 388 00:14:01,674 --> 00:14:02,174 automated. 389 00:14:02,794 --> 00:14:04,394 But really getting to the point where we're 390 00:14:04,394 --> 00:14:06,875 using, you know, more predictive tooling in the 391 00:14:06,875 --> 00:14:09,210 act of investment management, we're not there yet. 392 00:14:09,210 --> 00:14:10,330 Well, I look forward to see how this 393 00:14:10,330 --> 00:14:12,250 trend plays out on the next survey that 394 00:14:12,250 --> 00:14:13,769 we do of asset owners because this is 395 00:14:13,769 --> 00:14:16,250 a a hot topic that's emerging and evolving 396 00:14:16,250 --> 00:14:17,309 quickly. Yeah. 397 00:14:17,769 --> 00:14:20,009 Let's, just wrap up a couple more questions 398 00:14:20,009 --> 00:14:21,529 for you. I'm and, you know, it was 399 00:14:21,529 --> 00:14:23,394 a great regional survey. You talked about that 400 00:14:23,394 --> 00:14:25,235 at the outset. We got respondents from around 401 00:14:25,235 --> 00:14:25,894 the world. 402 00:14:26,514 --> 00:14:28,295 Did you notice any of the regional differences 403 00:14:28,355 --> 00:14:29,554 other than we talked a little bit about 404 00:14:29,554 --> 00:14:31,955 the equity side of things? What was the, 405 00:14:32,595 --> 00:14:34,274 what other types of regional differences did the 406 00:14:34,274 --> 00:14:36,035 survey find that stood out? So cash was 407 00:14:36,035 --> 00:14:39,470 another big one. The cash target policy targets, 408 00:14:40,009 --> 00:14:42,810 within EMEA and APAC were nearly double that 409 00:14:42,810 --> 00:14:45,870 of North America. So in general, that dovetails 410 00:14:45,930 --> 00:14:48,570 back to taking more equity risk right in 411 00:14:48,570 --> 00:14:50,649 in North America. I think, you know, this 412 00:14:50,649 --> 00:14:51,710 one wasn't surprising, 413 00:14:52,544 --> 00:14:54,144 but the numbers were a little surprising to 414 00:14:54,144 --> 00:14:56,565 me. So when it comes to sustainable investing, 415 00:14:57,424 --> 00:14:58,384 28% 416 00:14:58,384 --> 00:15:01,985 of North America's energy portfolios are clean or 417 00:15:01,985 --> 00:15:05,024 renewable energy types. That number jumps up to 418 00:15:05,024 --> 00:15:08,050 40% in APAC, 50 Percent of EMEA energy 419 00:15:08,050 --> 00:15:11,170 portfolios or natural resources portfolios are clean or 420 00:15:11,170 --> 00:15:13,809 renewable energy. And then it's the same in 421 00:15:13,809 --> 00:15:15,570 real estate. So if you ask, you know, 422 00:15:15,570 --> 00:15:18,050 we ask clients how much of your overall 423 00:15:18,050 --> 00:15:20,690 real estate exposure is in energy efficient or 424 00:15:20,690 --> 00:15:23,465 sustainable real estate. That number is 20% in 425 00:15:23,465 --> 00:15:25,784 North America. It's 3031% 426 00:15:25,784 --> 00:15:28,105 in EMEA and APAC, respectively. So really big 427 00:15:28,105 --> 00:15:29,644 differences that we can see, 428 00:15:30,105 --> 00:15:31,404 in what you would have called, 429 00:15:32,424 --> 00:15:35,460 ESG investing or sustainable investing. Not surprising, but 430 00:15:35,460 --> 00:15:37,460 very interesting nonetheless to see that type of 431 00:15:37,460 --> 00:15:38,759 difference. Yeah. Yeah. 432 00:15:39,379 --> 00:15:41,940 Anything else you saw surprising from the survey? 433 00:15:41,940 --> 00:15:43,220 Anything else that jumped out to you worth 434 00:15:43,220 --> 00:15:45,059 mentioning? We talked a little bit about the 435 00:15:45,059 --> 00:15:47,299 crypto finding. I still am noodling on that 436 00:15:47,299 --> 00:15:48,740 one a little bit and thinking about how 437 00:15:48,740 --> 00:15:50,695 our clients are taking that exposure. We've had 438 00:15:50,695 --> 00:15:52,475 plenty of clients talk to us about 439 00:15:52,934 --> 00:15:55,654 accepting gifts or maybe getting distributions from their 440 00:15:55,654 --> 00:15:57,735 private equity funds, but we haven't seen really 441 00:15:57,735 --> 00:15:59,514 anyone take a policy target 442 00:16:00,134 --> 00:16:03,014 strategic asset allocation to the asset class. So 443 00:16:03,014 --> 00:16:04,794 this one is one to watch for sure. 444 00:16:04,934 --> 00:16:05,434 Interesting. 445 00:16:05,779 --> 00:16:08,660 Looking ahead, any one trend you're watching closely 446 00:16:08,660 --> 00:16:10,340 or you're interested to see how it plays 447 00:16:10,340 --> 00:16:12,259 out in our next survey, or even in 448 00:16:12,259 --> 00:16:14,100 the coming years, Melanie? Yeah. I think just 449 00:16:14,100 --> 00:16:16,660 the geopolitical environment is changing the nature of 450 00:16:16,660 --> 00:16:19,134 asset allocation. So first and foremost, we see 451 00:16:19,134 --> 00:16:21,934 clients focus much more on country specific, less 452 00:16:21,934 --> 00:16:23,394 region specific allocation. 453 00:16:24,095 --> 00:16:25,934 That's certainly changing the way we think about 454 00:16:25,934 --> 00:16:29,075 creating funds or creating investment portfolios for clients. 455 00:16:29,455 --> 00:16:31,455 I think that's gonna be exacerbated by some 456 00:16:31,455 --> 00:16:33,389 of the tax treaty issues that we're seeing 457 00:16:33,389 --> 00:16:35,309 now crop up as a result of the 458 00:16:35,309 --> 00:16:35,809 stance, 459 00:16:36,190 --> 00:16:38,610 of The US and, you know, certain negotiations. 460 00:16:38,750 --> 00:16:41,230 Right? So I think that our clients are 461 00:16:41,230 --> 00:16:43,470 looking much more at after tax or tax 462 00:16:43,470 --> 00:16:45,870 advantage investing than they ever have before. These 463 00:16:45,870 --> 00:16:48,004 are largely not for profit 464 00:16:48,384 --> 00:16:49,044 or nontaxable 465 00:16:49,424 --> 00:16:49,924 institutions, 466 00:16:50,784 --> 00:16:52,705 but they are facing, on a number of 467 00:16:52,705 --> 00:16:55,125 different fronts, significant increases in tax. 468 00:16:55,504 --> 00:16:57,985 Oh, Meli, that was fascinating having you here 469 00:16:57,985 --> 00:17:00,210 today. The some of the insights from this 470 00:17:00,210 --> 00:17:02,929 survey really, really were interesting for me to 471 00:17:02,929 --> 00:17:04,230 read and to learn about. 472 00:17:04,769 --> 00:17:06,210 And I would say to, you know, to 473 00:17:06,210 --> 00:17:07,970 you, I'm looking very much forward to the, 474 00:17:08,210 --> 00:17:09,809 to the next survey that we do and 475 00:17:09,809 --> 00:17:11,250 to see how those trend lines and those 476 00:17:11,250 --> 00:17:13,835 results change. Great. Thanks, Grant. And I would 477 00:17:13,835 --> 00:17:16,234 say to our listeners today as well, it's 478 00:17:16,234 --> 00:17:17,994 worthwhile to get a copy of this, so 479 00:17:17,994 --> 00:17:20,575 please reach out to your Northern Trust relationship 480 00:17:20,714 --> 00:17:21,214 manager. 481 00:17:21,755 --> 00:17:23,275 A lot of really good insights, and we've 482 00:17:23,275 --> 00:17:25,115 only just scratched the surface in our discussion 483 00:17:25,115 --> 00:17:27,504 today. Thank you all for tuning in to 484 00:17:27,504 --> 00:17:30,144 Faster Forward by Northern Trust Asset Servicing. Thanks 485 00:17:30,144 --> 00:17:32,404 for you, Balonique, to come today. Thanks, Grant.