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Northern Trust Press Release

 
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Northern Trust demonstrates positive impact of asset pooling on after-tax investment performance

 

Choice of cross-border investment vehicle can have a measurable effect on asset manager performance and investors’ returns over time

 

London, January 20, 2012 —

Northern Trust (Nasdaq: NTRS), an industry leader in the provision of asset pooling solutions to institutional investors and asset managers worldwide, today released the results of its research on the compounding impact on performance returns over time from investing in a tax efficient fund structure. 

Using a model that incorporates dividend taxation rates across a range of popular equity mandates, Northern Trust’s research found that a tax transparent asset pooling vehicle, such as the Irish domiciled Common Contractual Fund (CCF) or the Luxembourg Fond Commun de Placement (FCP), can enhance returns by as much as US$81 million on a US$1 billion portfolio invested in broad market indices over a 10 year period.  

“As countries across the globe implement taxation changes, or consider proposals to do so, the modelling Northern Trust created as part of our analysis enables fund managers and end investors to understand in quantifiable terms the financial impact of investing in global equity markets through a tax transparent fund versus other popular collective investment vehicles,” said Phillip Caldwell, pooling product manager at Northern Trust. 

“The local revenue authorities in many investment markets are raising standard withholding tax rates, but at the same time a number of investors, such as pension funds, are seeing the rates they pay under double tax treaties fall, Caldwell added. “As this trend continues, the divergence in performance between an investor able to access these rates through a transparent fund and an investor in a non transparent fund will only increase.” 

Tax transparent fund vehicles, such as the CCF, FCP and the Dutch Fonds voor Gemene Rekening (FGR), may enable investors to access the same double tax treaty rates as if they had invested directly into the underlying securities in global markets, helping to mitigate the withholding tax “drag” and resulting in enhanced returns for investors each year. 

In order to estimate the difference in returns for investors investing via a tax transparent structure, compared to more traditional Collective Investment Vehicles, such as an Irish Investment Company with Variable Capital (ICVC), Northern Trust captured several po pular global equity indices, MSCI World Index, MSCI European Index and the S&P 500 Index, and calculated how withholding tax drag would impact a US$1 billion investment over a period of 10 years. 

Using a US$1 billion investment as the basis for the comparison, results show that European pension funds investing into a MSCI World Equity index fund could benefit from savings of up to US$49 million in a CCF compared to an ICVC over the ten year period.  For an MSCI European Equity mandate, an EU pension fund benefited from savings of up to US$27 million, while UK Pension Funds were up to US$37 million better off in the CCF.  For investment in the U.S. equity markets, the results in a typical S&P 500 fund were even greater: Investors entitled to zero percent withholding in the U.S. (including many European-domiciled pension funds and charities) were losing up to US$81 million over the 10 years as a result of investing into a Collective Investment Vehicle that suffers 30 percent withholding tax on U.S. dividend income. 

 Asset pooling press release chart

Fig. 1: The chart shows how the additional returns obtained by a Pension Fund on U.S. equities in the CCF accumulate over the 10 year period. Source: Northern Trust 

“Against the backdrop of daily market volatility, global economic uncertainty and continuing pressure to reduce costs, investors are looking for ways to increase their returns,” said Pete Cherecwich, head of Global Fund Services at Northern Trust. “Choosing the right investment vehicle is one way to achieve this. As a result, we are seeing an increasing interest in and demand for tax transparent asset pooling vehicles, such as the CCF, FCP and FGR. Interestingly, the UK authorities are close to establishing their own tax transparent vehicle to attract investors, which should be available from summer 2012.” 

Northern Trust is a pioneer in cross-border asset pooling and was the first to fully support tax-transparent funds, created to pool the assets of investors from multiple jurisdictions with multiple tax rates, investing in multiple jurisdictions. As of September 30, 2011, Northern Trust currently has 25 clients on its tax transparent, global pooling platform, with more than U$61 billion of assets under custody and U$38 billion in assets under administration.  

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2011, Northern Trust had assets under custody of US$4.3 trillion, and assets under investment management of US$662.9 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com

The Northern Trust Company, London Branch (reg. no. BR001960), Northern Trust Global Investments Limited (reg. no. 03929218) and Northern Trust Global Services Limited (reg. no. 04795756) are authorised and regulated by the Financial Services Authority.

The material within and any linked material accessed via this communication is directed to eligible counterparties and professional clients only and should not be distributed to or relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors.

Northern Trust (Guernsey) Limited, Northern Trust Fiduciary Services (Guernsey) Limited, and Northern Trust International Fund Administration Services (Guernsey) Limited are licensed by the Guernsey Financial Services Commission. Northern Trust International Fund Administrators (Jersey) Limited and Northern Trust Fiduciary Services (Jersey) Limited are regulated by the Jersey Financial Services Commission. Northern Trust International Fund Administration Services (Ireland) Limited, Northern Trust Securities Services (Ireland) Limited and Northern Trust Fiduciary Services (Ireland) Limited are regulated by the Central Bank of Ireland. Northern Trust Global Services Limited has a Luxembourg Branch, which is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF). Northern Trust Luxembourg Management Company S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF). Northern Trust Global Investments Limited has a Netherlands branch, which is authorised by the Financial Services Authority and subject to regulation in the Netherlands by the Autoriteit Financiële Markten. Northern Trust Global Services Limited has a Netherlands Branch, which is authorised and regulated in the Netherlands by De Nederlandsche Bank. Northern Trust Global Investments Limited has a Sweden branch, which is authorised by the Financial Services Authority and subject to regulation in Sweden by the Finansinspektionen. Northern Trust Global Services Ltd (UK) Sweden Filial is authorised by the Financial Services Authority and subject to regulation by the Finansinspektionen. Northern Trust Global Services Limited operates in Abu Dhabi as a Representative Office. Our registered office is authorised and regulated by the Central Bank of the United Arab Emirates. The Northern Trust Company operates in Australia as a foreign authorised deposit-taking institution (foreign ADI) and is regulated by the Australian Prudential Regulation Authority. The Northern Trust Company has a branch in China regulated by the China Banking Regulatory Commission. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a Singapore Branch, which is a foreign wholesale bank regulated by the Monetary Authority of Singapore. The Northern Trust Company operates in Canada as The Northern Trust Company, Canada Branch, which is an authorised foreign bank branch under the Bank Act (Canada). Trustee related services in Canada are provided by the wholly owned subsidiary The Northern Trust Company, Canada, an authorised trust company under the Trust & Loans Companies Act (Canada). Deposits with The Northern Trust Company and its affiliates and subsidiaries are not insured by the Canada Deposit Insurance Corporation.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice, see http://www.northerntrust.com/circular230

LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice.  Readers should under no circumstances rely upon this information as a substitute for obtaining specific legal or tax advice from their own legal or tax advisors.

 
 
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