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Northern Trust Building Better Views of Liquidity for Asset Managers

How the custodian is renovating IT and operations to support intra-day calculations, dashboards, and a five-petabyte data store intended to help hedge fund and private equity investors know precisely who and what they're dealing with.

The recent liquidity crisis has forced custodian Northern Trust to reinvent its operations and IT to give asset manager clients better insight into their positions, investment performance, exposures, counterparty risk and liquidity risk. "The role of the custodian is evolving to provide more data," says Peter Cherecwich, chief operating officer. "Asset managers had to take losses over the last year and a half due to lack of liquidity. Counterparty risk is not just about what stocks you hold any more, you have to look at other things such as securities lending and credit default swap relationships."

At a press breakfast this morning, Cherecwich and other Northern Trust executives shared a few peeks into the operations and IT infrastructure projects they've been working on to provide better performance and liquidity data to clients around the world.

The 26-hour day (in other words, how operations and IT "follow the sun" around the world and hand off work among the geographical regions): The firm's primary operating centers are in Australia, Bangalore, London and Chicago. The Melbourne office starts accepting trades from investors and generating trade reports at 8:00 a.m. Five and a half hours later, work shifts to Bangalore, where the focus is on price validation and reconciliation. Six and a half hours after that, operations follows the sun to London, where valuation checks, compliance monitoring, daily performance attribution and cash forecasting calculations are performed. Seven hours later, it's on to Chicago where operations staff perform settlement, foreign exchange hedging and final daily valuation and end work at 7:00 p.m. (but meanwhile, the new day has started two hours prior in Melbourne). "The data sets in all the centers are identical," notes Giff Ehrenstrom, manager of global consulting group, corporate and institutional services.

Build versus buy choices: Barb O'Malley, director of business applications, described some of her group's build/buy decisions. The firm buys, she says, when a packaged solution can be fired up quickly to respond to market demand. Examples of Northern Trust's off-the-shelf IT investments include: HIP fund of hedge fund administration software from youDevise, InvestOne fund accounting and Investran fund administration software from SunGard, Lombard Risk collateral management, SmartStream reconcilation, Barra analytical tools and tracking and reporting software from the Burgiss Group.

But the firm's data warehouse, compliance monitoring, performance measurement, asset servicing, trade capture, data warehouse and Passport (a client portal) software have all been built in house. (The home-grown data warehouse serves information to all the above-mentioned applications.) O'Malley says the firm's use of web services has dramatically improved interoperability between third party and in-house systems.

Creating a five-petabyte data store: Because customer demand for transparency has pushed Northern Trust to move to daily and intra-day valuation of assets — it scrubs a million prices for 500,000 assets every day — the volume of data that flows through O'Malley's shop has grown exponentially. "Where we used to talk about terabytes, now we speak of petabytes," she says; currently the firm manages five petabytes of data and it expects to have 10 petabytes by 2012. The firm recently used server and data virtualization to create a view for clients of the underlying securities held in their securities lending collateral pools. O'Malley says the use of virtualization shortened the project time from 12 months to six months.

Retooled portal: Northern Trust recently added new tools to its Passport client portal, including compliance reporting tools, a compliance radar that lets customers set up compliance guidelines that are tested every night (one client has 600 guidelines embedded) and breaches reported, a hedge fund monitor that enables clients to track their investments in hedge funds (for instance, predicting when the client can get out of a hedge fund and what that exit will cost), and private equity reporting and workflow tools.

Social networking and mobile projects: The firm plans to develop a social networking site that will provide tools such as quick feedback polls to clients; this is slated for rollout in six months. "Social networking is here to stay, but we have to do it in a way that's interesting to clients," Cherecwich says. Another IT project on the drawing board is a mobile version of Passport, targeting the iPhone first, then other devices. This will show give clients views of performance, counterparty exposures, news and podcasts.

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