Northern Trust provides the complete suite of asset services to asset managers – depository, custody, fund accounting, transfer agency and middle-office outsourcing. “Basically, everything that a manager does post-trade execution,” says Toby Glaysher, head of Northern Trust’s fund administration business in EMEA.

The Global Fund Services (GFS) business employs 1,500 people in EMEA, across Ireland, UK, Channel Islands, Luxembourg, the Netherlands, Germany and Riyadh and has around 200 asset manager clients within the EMEA region, among 500 globally. 

Northern Trust created tax transparent funds over ten years ago as a vehicle to allow multinational pension funds to combine their assets into a single investible pool, without suffering tax drag.

“We always felt in the long run they would be a vehicle that would be even more relevant for asset managers themselves,” he says. “Index managers and large institutional managers are experiencing their margins being squeezed and it’s become a scale game – so the ability to get as many assets as possible into a single place is clearly advantageous.”

Tax transparent funds (TTFs) only really work for institutions as direct investors. “We have to hold the shareholdings at an underlying investor level and distribute the income at a shareholder level,” says Glaysher. By comparison, a tax opaque fund maintains a register of investors and the income is distributed at the fund level.

“Clearly TTFs would be unworkable it you had hundreds of thousands of retail investors. Beyond a certain level it becomes sub-optimal to even reclaim certain taxes.”

TTFs are an ideal investment for direct institutional investment, says Glaysher, typically with a minimum investment of $25m.

“What we are now working on with some of the largest asset managers in the ACS space, as well as the CCF space in Ireland, is how to combine those big institutional investors with other pools of assets by creating master-feeder structures.”

The idea is to create a single master fund with feeder funds in various other jurisdictions, so smaller investors can access the large master fund pool through a feeder fund in their domestic market. For the underlying manager, it means that they can get even greater scale and efficiency by combining more assets in the master fund. “In the large index funds, where every basis point counts, this will be very important,” he adds.

Large asset managers frequently have products domiciled in Ireland, the UK and Luxembourg as well as other places. “Getting master-feeder funds working, in a tax-efficient manner, is the real prize. Asset managers would be able to domicile a single master fund and have multiple feeder funds coming in from multiple jurisdictions – but only manage the investments once. It would be tremendously more efficient.”

The other driver in the UK from an ACS perspective is occurring in the Local Government Pension Fund market. The government is pushing 89 funds with roughly £200bn ($268bn) in assets into creating six super-pools of at least £25bn each. One pioneer of such pools was set up when the London boroughs and the City of London Corporation got together to create London CIV in December 2015.

“We successfully helped to launch the London CIV and have got more to come. The other local government pension schemes are also organising themselves into groupings to create pools. We believe that the ACS will be a national vehicle for them.”

A competitive RTP process took place for the London CIV and Northern Trust was the winner. “We won it on the back of our deep expertise in the tax transparent pooling domain generally but also specifically around ACS. We were deeply involved in the construction of the ACS, working with HM Treasury and other industry participants.”