Multi-Manager Selection Process

A Rigorous Process to Result in Consistent Returns for Our Clients

Northern Trust has researched and selected third party investment managers for over twenty years. Our decades of combined experience as pension directors, consultants and fund managers give us a rich perspective on investing, spanning numerous markets and asset classes globally. These common experiences underpin a rigorous, uniform investment process, resulting in consistent returns for our clients.

Confidence is the currency of our trade. Nothing gives us more confidence in our managers than understanding their investment processes and portfolios. We use an interactive, investigative process to develop this understanding, combining the following qualitative and quantitative techniques.

Portfolio Manager Qualitative Investigation
Our qualitative investigation focuses on the portfolio manager and his or her supporting team. We try to understand the role, training, personality and decision-making habits of each professional within the context of the firm's ownership and incentive structure. Compiled through on-site and off-site interviews and reference checks, this background helps us to avoid surprises by understanding or even anticipating how the investment manager will react in a variety of market circumstances.

Successful Portfolio Manager Personality Traits
We find that successful portfolio managers exhibit independent thinking, strong personal discipline and intellectual flexibility. They have exceptional histories and demonstrate deep understanding of and commitment to their business. Successful groups have strong leadership, a crisp, non-bureaucratic decision making process and a high energy level, all of which encourage creativity and risk taking.

Quantitative Portfolio Performance Review
Unlike consultants who screen managers based on historical performance, our quantitative review comes second and aims to verify the conclusions of our qualitative due diligence using both performance and portfolio data. The following are some of the fundamental questions we try to answer:

• Is the manager's portfolio and performance consistent with their process description?
• Is the level and composition of risk consistent across time?
• Does the manager's performance indicate skill or a favorable environment?
• Is performance commensurate with the risks taken?
• Does the process result in hidden or unintended risks?
• Is the process responsive to changing markets?
• Will the portfolio overlap or complement those of our other managers?
• Are there any inconsistent results warranting further investigation?

Investigation of Inconsistent Results
The last of these questions is especially important, for our own investment process is intended to be both iterative and interactive. When we find an inconsistency in the data, we do not view it as marking the end of our decision process, resulting in the rejection of the manager. Instead, we view it as an opportunity to circle back and improve our understanding before rendering a final decision