Sara Benwell: Can you tell me a little bit about the new front-office solution and how it came about?

Melanie Pickett: Before coming to Northern Trust, I was a client. I was the Chief Operating Officer of the Emory University endowment for five and a half years. During my time there, part of my mandate was to build a technology solution that would meet the needs of our investment team.

At the time, coming out of the financial crisis, our investment team was doing a lot of detailed analytics around the portfolio to better understand their risk and their exposure. We needed something that would work seamlessly across both public and private markets assets and provide risk, exposure, liquidity, performance in a way that would provide a common lens into the portfolio.

"We needed something that would work seamlessly across both public and private markets assets"

I set out to find a solution for my investment team, called all the technology providers, all the hedge fund administrators, all the custodians and did a very detailed review and still, at the end of the day, learned that there really had not been a fit for purpose application built for asset owners to do what we needed to do to consolidate the portfolio into one holistic view.

So, then I set out to build this at Northern Trust.

Sara: How did you start building the new solution?

Melanie: We started the group as a start-up within the bank. We have a cross-functional team of technology, business and operations all together – our developers, designers, client leads, portfolio accountants, marketing, and sales resources all sit together and are very much part of one team.  That group started as two people, and now it's close to a hundred people focused on this business.

We also bought a small fintech called Parilux Investment Technology. We did a series of equity investments and then built a public cloud-based web application on top of the foundation they built. Now, we've on-boarded about one hundred and seventy billion dollars in assets onto the platform across twenty-nine clients now and are growing continuously. So, it's been a really fun opportunity!

Sara: How easy was it to stay innovative within a big bank culture?

Melanie: I knew going into the role exactly what we wanted to build, and I had a clear business case. From the very beginning the process has been very client driven and we wanted to make sure across Northern Trust’s business segments and geographies that we were incorporating the needs of all of the clients.

To achieve this, we utilised a human centred design lab called our Client & Partner Experience team. They went out and did deep, detailed research with dozens of clients to find out what their biggest pain points were. We went through rounds and rounds of design and discussion with our clients to make sure that the product would fully meet their needs – which took between six and nine months.

I knew we needed to get the technology to market quickly, so we were going to have to do that with a partner. We weren't going to be able to build it from scratch – as that would have taken much longer. Partnering with Parilux was really, really helpful because that allowed us to have some foundational technology to offer and then everything that we've done on top of that has created strong and modern capabilities around data, machine learning and data visualization.

"Would you be more confident in a tech start-up trying to do this or would you be more confident in a large global custodian?"

One of the more difficult and challenging parts of doing this in a large organization is that Northern Trust is heavily regulated, which means we've got additional data security, privacy and regulatory hurdles to clear that we wouldn't have in a start-up. But at the same time, even I underestimated how additive Northern Trust’s reputation and brand would be to the effort.

When we went out to do that research with clients, we asked: ‘Would you be more confident in a tech start-up trying to do this or would you be more confident in a large global custodian?’ I expected the answer to be 50-50, but every client said they actually wanted it to be their custodian.

So, having the big bank's strength and market reach and reputation for service has really been a big part of this, because no matter what great technology we bring to bear - it's a people business. And the clients want great service behind the technology.

Sara: What were some of the biggest challenges clients were facing – and were any a surprise?

Melanie: One of the biggest challenges is that the composition of portfolios tend to be heavy on alternatives, but also similarly heavy in marketable assets. There have been systems that handle marketables really well and there have been systems that handle alts pretty well, but those systems haven't really ever come together in one data model. Clients were having to deal with five to 10 systems and were really challenged with trying to manage data between all these various systems.

Data management, particularly around alternatives is also really difficult. If you think about alternatives in a portfolio, you don't often have transparency into what's underneath and the valuations are sometimes far behind your marketable assets. If you can't look through the underlying assets, then you're not able to get the full picture. So, data management and transparency were really important, as well as having fewer applications to be able to do that work in.

"Data management, particularly around alternatives is also really difficult"

Finally, I would say that each of our clients has a different investment process and they all have bespoke ways that they look at the portfolio or things that are more important to them and their organization. That meant having something that was super customizable was also going to be the key to getting it right - to make sure that we could craft the language of the application around the way that they see the world.

One bigger surprise to me was how truly widespread and global is the need for this product set. I knew the endowment and foundation space very well, but I didn't have a great deal of experience with family offices or pensions or some of the other overseas entities such as sovereign wealth funds or superannuation funds. The demand and the unmet need certainly felt a lot bigger once we did that research.

Sara: To what extent did you work in partnership with your clients?

Our clients have certainly shaped the details of how we've gone about building this.

For instance, we have one feature in our application which has been really attractive to clients – which was building all these great data visualisations. It's really fun for developers and designers to think about all these beautiful charts and graphs to view your data - and those were really attractive to senior investment decision makers.

But then when we spoke to the analysts in the organisation, they would always say: I'm responsible for checking the data behind the graph. I don't care about the charts - I need the raw data. So, we built this little toggle on every beautiful visualization where you can immediately get an Excel-like grid of all the underlying data that the chart is referencing. That  is just one example of ways that our clients helped us design, something I never would have envisioned and certainly has met the needs of both the junior and the senior investment decision makers.

Looking back to when we started, we had these storyboards that showed hand drawn sketches of what we thought we might build in terms of a feature or function. We would go back to our clients and refine that view over time.

"I'm responsible for checking the data behind the graph. I don't care about the charts - I need the raw data"

Now that we have clients that are live on the platform, the way that we design a new module or portfolio view works very much in the same way. We design a couple of different options on prototypes and then we try them out.  For instance, we did this recently with our liquidity module.

We went out and talked to a couple of the chief investment officers on our platform and asked: do you like interrogating the data this way or that way? What are the fields that we might be missing or data elements that are important to you? We needed to get a minimum viable product out there first and then refine it over time, so we asked them what's most important in this view and what can we maybe wait until phase two for?

We do that routinely and we are going back out now for another round of client research sessions. Having been a client, it's just super important to me that they continue to drive the platform forwards. I’m really passionate about the asset owner community and having our business be client-led has been one of the most rewarding aspects of creating Front Office Solutions.

 

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