The fintech revolution is taking another unexpected turn, according to Melanie Pickett, head of asset owners in the Americas at Northern Trust, who has overseen some key AI-driven initiatives as of late.
The number one question she hears from clients is about the use cases of AI. And thanks to a number of recent acquisitions and a focus on building out tools at scale to meet global institutional investors’ needs, Pickett’s team seems ready to answer in earnest.
She told Alternatives Watch in an exclusive interview that the “bundle is back” as asset owners look to streamline the number of service providers they use. This follows a trend that kicked off over a decade ago where numerous specialist tech providers won business on an adhoc basis from both LPs and GPs.
The trend bodes well for Northern Trust, which has a global asset owner franchise totaling $8.3 trillion in assets totaling 1,800 clients globally.
New content and community offering
Northern Trust, known for its custodial services to global institutional clients, launched last year its A-Suite to further cement is engagement with long-time clients. The new service allows Chicago-based Northern Trust way to offer content and community for clients, including the dissemination of white papers and product information. Clients can also access insights from one another, Pickett highlighted.
Northern Trust is planning to add more features such as a live discussion platform focused on current issues. The goal is for investors to share issues and challenges they are facing with other types of investors as well, such as pension allocators talking to foundation investment offices.
For instance, an A-Suite “Live” held in December focused on how alternative investments are included in defined contribution plans. “Part of the goal was to engage the portfolio management teams at our clients,” Pickett said, adding that historically the firm had relationships with chief operating officers and accounting teams mostly.
Of the 4,300 users of A-Suite, roughly 47% are investment professionals. The clients are looking to uncover best practices and to find out what other clients are doing, she added.
Metrics and data, please
Last year Northern Trust took an equity stake in Novata, a platform for private market clients to collect and report ESG data.
The addition of Novata’s data management solution is an extension of Northern Trust’s Whole Office strategy designed to provide asset owners with a clearer view of the ESG impact of private companies on investment portfolios, in addition to simplifying the ESG data collection process for investors and portfolio companies. Northern Trust Whole Office facilitates client access to new technologies, services and solutions across the investment lifecycle, officials said in an announcement in November 2023.
Pickett said that Northern Trust can now offer benchmarks that can help asset owners contextualize the info they get from GPs. Benchmarking is based on the data that is able to be sliced and diced by metrics such as asset size and sectors. There are 800 or so metrics currently being measured by Novata.
Most LPs and GPs have used public companies for ESG data, but that is not as valuable as having the data directly on private companies themselves. A growing number of LPs also act as GPs, and these sophisticated investors are sending out a lot of surveys on a regular basis. But the Novata platform, which is backed by the Ford Foundation and Hamilton Lane, will allow investors to do that kind of data collection on a regular basis.
Emerging use case for AI
For AI to shine there needs to be data — but AI can also help in gathering the right kind of data. Pickett outlined Northern Trust’s continued focus on digitalization’s impact across asset servicing. Around 2021, the firm began an initiative by exploring simply how documents could easily be pulled off of investor web portals. They sought to use robotic automation to get the data in a usable format.
The team collaborated with Microsoft to get NAV and redemption notices pulled as well as creating a machine learning model for clients to automatically tag the data, according to Pickett.
Another partnership in late 2021 with a company called Accelex aided in getting the underlying holding data and helped to reduce the manual workload. Powered by proprietary artificial intelligence and machine learning techniques, Accelex solutions automate processes for the extraction, analysis and sharing of difficult-to-access unstructured data.
Another partnership struck with Equity Data Science means that Northern Trust’s suite of Whole Office solutions offers cloud-based software to help investors formalize, measure, and refine the investment decision-making process.
For Pickett, the combination has helped clients leverage AI greatly, with practical results that she sees from her additional post as head of the Front Office Solutions group, which serves over $535 billion in AUM as of the end of 2023. “We see clients looking to make data extraction more efficient,” she said. “An endowment needs to understand every sector and every geography. The more that that data can be pulled and aggregated it will improve decision making.”
Another interesting area in which to utilize AI is to understand the efficacy of the investment decision. This could be simply tracking performance for funds in which a client did not commit capital. It’s a very data-intensive process, she said.
Another area of automation for generative AI is for call notes with managers. Equity Data Science employs generative AI in helping investment managers that are having conversations with management teams at companies and helping them understand the consensus of the information, so the process could be applied to help allocators as well in their interactions with managers.
Lastly, operational and investment due diligence may be augmented via AI. Pickett declined to go into specifics, other than to say that a deal in that area may be announced soon.