Global Custodian: What has Northern Trust learnt from being involved in this model?
Peter Sanchez: While the specific Bridgewater/BNY Mellon/Northern Trust model may not be replicated at many other firms, the foundation and trends it has triggered in terms of shadowing of IBOR/CBOR etc. has taken the reconciliation and shadow process to a new level. We have taken the principles of those controls for other shadowing projects with other clients.
The main takeaway we have seen is that there is huge enhancement in client safety. Every day for the Bridgewater book, there is a daily independent verification of assets by both parties, with all positions and cash reconciled on a T+0 basis, which is really unprecedented in terms of reconciliation.
There is increased resiliency where all of their data is being reconciled by two independent technology operation platforms that are different from each other. For Northern Trust and BNY Mellon, they are both enhancing and broadening the control of the shadow on an ongoing basis, making sure they get best of breed.
GC: How will Northern Trust look to evolve this model?
PS: The shadow offering has morphed as an IBOR or data reconciliation offering. Comparing it to the accounting or custody book of record – once we have the entire book of the fund, we are able to offer risk, performance, and treasury services because we have that data across all of the PMs and strategies.
For a middle-office offering, it is expected to shadow the PM system to the P&L of the administrator, with an ability to do a custody check, as well as enhanced middle-office and data aggregation services. There is significant business opportunity for clients that have multiple managers and asset owners to use this model.
GC: How else can Northern Trust use the dual-outsourcing for clients?
PS: We are using principles of the shadowing offering and offering a lighter version where we can shadow the reconciliation of our book of records and the PM systems of the client. We have taken the capabilities of the Bridgewater deal, and are building out a lighter version – where we then have a huge data aggregation and middle-office offering.