The new funds are part of Northern Trust Global Investments and are designed to provide a range of opportunities with risks spanning moderate to opportunistic. The funds are being launched under the direction of Lori Runquist who created them over the past six months with three distinct audiences in mind.
The funds are:
- Northern Trust Arbitrage Fund is the most moderate fund in terms of achieving an annual return target in the low teens. It is targeted to the pension fund community. The fund will be unleveraged and have low volatility and a low correlation to most other asset classes.
- Northern Trust Diversified Hedge Fund is aimed at endowments and foundations and seeks a return in the mid-teens. The fund will also seek low volatility and a low correlation.
- Northern Trust Strategic Opportunities Hedge Fund, the most aggressive fund, is looking for a return in the high teens and is being aimed at high net worth individuals and family offices.
Unlike many hedge funds, the Northern product is designed to be risk averse and have minimal use of derivatives, she said. Equity options may be used, but there is no need for a fixed income exposure now.
As a fund of funds, about 10-15 managers will be used in each of the three funds, although that may change over time. No more than 18-20 managers are expected to be in each fund. Each fund requires a minimum investment of $1 million.
Northern Trust’s move into hedge funds signals a new direction for a trust company known primarily for its custodian services. Over the past five years, Northern has moved into more active management investment products, so the move into hedge funds was a “natural evolution,” according to Runquist.
While hedge fund certainly are not new, the Northern product has some new features, Runquist said. These include full transparency for customers to see the types of investment in the fund, their geographic location, market capitalization and sector exposure. Daily performance will also be posted.
Runquist also said initial money has already been committed to the funds and there should be more liquidity in these funds than others in the marketplace.
A national roll-out for the funds is slated for March 1 and sales will be conducted from the Chicago headquarters. Northern’s London office may also participate in selling the initial three funds offshore in order to attract some tax-exempt clients.
If the initial launch is successful, future plans could call for creating more hedge funds to be sold from the London office.