The Wealth Mosaic Talks To John McCareins, Head of International at Northern Trust Asset Management, about how the firm has adapted its institutional offering to suit the needs of the wealth management community and how sustainable investment forms a key component of that. In this series, we interview senior executives from leading wealth management firms, solution providers, and WealthTech influencers to learn more about them, their journey, their perspectives on the market, and how they see the future of wealth management.
“End investors are increasingly discerning and intentional–it’s not just about returns anymore, so we want to help wealth managers meet that demand. By being very intentional, prescriptive, and precise about how we design investment solutions, we believe that we can enhance the risk-return trade-off and do so with full transparency.”
To start, could you tell us a bit more about yourself, please, John?
I lead our international asset management business, and I’ve been in the industry for about 25 years or so, 21 of that, with Northern Trust. It has been a great journey so far, with seven roles in that time, from asset servicing client service, investment research, leading our institutional OCIO practice, and seven years in Hong Kong as a regional head of the Asset Management Business. I’m now London-based and responsible for our non-US asset management business.
Tell me about some of the big investment themes you are seeing at the moment
We pride ourselves on solving complex challenges and making sure that we are consistently thinking about where and how investors are being compensated for the risks they’re taking in their portfolios. One of the nuances to that is really thinking about working with clients around bespoke solutions.
What we see as driving activity at the moment, particularly for our institutional clients as well as the various wealth managers or wealth management clients that we work with, is the prospect of a soft landing, particularly for developed markets. So, over the next 12 months, we have repositioned to a neutral position across equities and real assets with a modest overweight to high yield at the expense of cash and investment-grade bonds.
In this multi-asset context, the primary active exposure at the moment is high yield. There, we can see an income-generating opportunity; higher-quality high-yield represents the highest percentage of the overall investment universe that we've seen in many years, and default rates are relatively low. So, demand for income with a heightened quality within the asset class and the economic backdrop is where we think the most favourable risk-return trade-off is to be found.
You’re best known as an institutional asset manager – what are you now offering to wealth managers and why the pivot?
Our institutional heritage makes us unique in the industry, and roughly 75% to 80% of our global assets are held in that segment. But over the last two years, particularly in the UK, we've invested in people, products and infrastructure to bring that institutional asset management capability to the wealth space. In the UK, you see a growing wealth management industry, whether this be in the form of digital platforms, or the more traditional wealth management models. The sub-theme to that is the movement away from the desk portfolio manager, if you will, to more of an institutional quality or institutional-style multi-asset model without come orientations.
We believe the industry's future is less about investment management led by an individual financial adviser and more about platform providers with asset allocation model portfolios that use institutional-style or institutional-quality investment strategies. This allows us to take what we've done for the largest investors worldwide and repurpose or repackage it to deliver through an institutional-style wealth management platform.
What do wealth managers need?
It's definitely an evolving model. Asset aggregators are developing their own model portfolios, and they’re looking for firms like ours to serve as partners. Whether that’s providing macro insights to help them develop or inform their stock, bond and cash asset allocation decisions or helping to fulfil a specific need with a global equity or fixed income strategy. Platforms can then provide a higher level of expertise and engagement with financial advisors and, ultimately, better outcomes to end investors.
However, although they look and feel much more like an institution, they demand support in that they interface with a number of different wealth management advisers or wealth management firms who then engage with their underlying clients.It’s ultimately B2B2C in many cases.
It is very different from the type of discussion or dialogue we might have with an institutional investor, B2B, which might be a little more interested in the statistics, the risk and return drivers, and the foundation of what drives strategy design.
It's thinking a little bit differently about marketing communications and support. We are here to support their business, how they develop their model portfolios and how they ultimately deliver the solutions to clients.
Sustainable investment is something that you are very driven to do–can you tell me more?
Sustainability is foundational to who we are as an organisation. The intersection of risk, return, fees and sustainability is a new paradigm. And in our view, it’s been foundational to our institutional clients. But we are now seeing that taking hold in the wealth management space, too.
Over 70% of our strategies on wealth platforms currently integrate ESG metrics, and we bring institutional-level research, which means we can differentiate ourselves in terms of enhanced business support.
Sometimes, we target specific factors and/or solutions that are nuanced and meet the needs of certain clients; a green bond strategy with a proprietary ESG evaluation methodology is a good example of this. Although it was initially intended for the institutional market; we now offer it in a vehicle that wealth managers can access. We recently launched a global equity strategy with a natural capital tilt in partnership with an asset aggregator as another example.
End investors are increasingly discerning and intentional–it’s not just about returns anymore. So, we want to help wealth managers meet that demand. By being very intentional, prescriptive, and precise about how we design investment solutions, we believe that we can enhance the risk-return trade-off and do so with full transparency.
What do you mean when you say investors are moving towards more intentional investing?
We're continuing to find investors in the wealth space moving away from chasing purely excess returns to being more intentional in achieving specific investment outcomes. They might want a portfolio to maximise or enhance income, manage a specific risk, or reach a specific volatility target. This plays very well into our strengths, our history, and our core competency in the quantitative investing spaces, so it is a natural fit for us and an area where we feel we can be successful.
About Northern Trust Asset Management
Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments in efforts to realise their long-term objectives. Entrusted with US$1.2 trillion in assets under management as of 31 March 2024, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take—in all market environments and any investment strategy. That’s why we combine robust capital markets research, expert portfolio construction and comprehensive risk management in an effort to craft innovative and efficient solutions that seek to deliver targeted investment outcomes. As engaged contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect and transparency.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., NorthernTrust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, NorthernTrust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The NorthernTrust Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families, and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of 31 March 2024, Northern Trust had assets under custody/administration of US$16.5 trillion and assets under management of US$1.5 trillion. For more than 130 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us at northerntrust.com. Follow us on X (formerly Twitter) @NorthernTrust or Northern Trust Corporation on LinkedIn.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603U.S.A., is incorporated with limited liability in the US. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.
