Competition is heating up in the long-underserved market for allocator-specific technology.
Northern Trust’s new portfolio platform, Front Office Solutions, has signed its first clients, division head Melanie Pickett told Institutional Investor in a recent interview. About half a dozen university endowments, family offices, pension systems, and funds-of-funds have come aboard since the product launched in January.
Institutions have long struggled with the operations side of running complex portfolios, patching together multiple systems and manually reconciling messy data.
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But in the last few years, a number of off-the-shelf products have taken off. A cottage industry of overhaul consultants has emerged to help with implementation, including Citisoft and Ken Akoundi’s firm Cordatius.
Northern Trust — one of three major institutional custodians — hired Pickett in 2017 to build and run its offering. Pickett came from the allocator world, having led operations at Emory University’s endowment since 2011. She saw an edge for Northern Trust over the competition: They’re a custody bank, or the plumbing, behind a huge number of institutional portfolios already.
During the initial design phase, Pickett said she “went and talked to 40 clients and prospects about what they would want out of this business. At the end of each of those sessions, I asked, ‘What would your response have been today if I’d come in as a VC-backed tech company, versus me coming from Northern?’ Some people like the allure of a tech company.” But, to Pickett’s surprise, every person responded, “‘We want this to be our custodian. Our custodian already has all of our data, our custodians are people we trust.’ It’s been extremely useful in attracting clients.”
Of course, many institutions have opted for Northern Trust’s venture capital-backed competitors, such as Solovis, a fast-growing Dallas firm.
A private equity firm had offered to fund Pickett’s vision before she joined Northern Trust. “I didn’t want some arbitrary exit hanging over my head,” she said. “Here, I’ve got the flexibility and the freedom that an entrepreneur would have, but I’ve also got the reputation and strength of the bank behind me.” She also has the anxiety of a start-up executive, she added. “It’s a significant investment for the bank and a big strategic priority.”
Front Office Solutions has just closed its first quarter as an active business. Pickett leads a staff of about 30, and is actively recruiting for five or 10 more roles.