Point of View - Global Investment Solutions from Northern Trust

Voices: Chris Carlson

A review of current activity in global financial markets, with an emphasis on U.S. markets.

Today, and over the foreseeable future, a series of events — call them global megatrends — will have a profound impact on the world economy. Each issue of Point of View will share insight into these trends and how the institutional investment community is preparing to address them.

Greater Acceptance of Alternative Investments

Plan sponsors increasingly are turning to the use of alternative strategies and asset classes to address their plans’ underfunded liabilities. The trend is being spearheaded by some of the nation’s largest pension plans.

Enlarge

* As of Sept. 30
** New or modified category without comparable 2005 data.

Source: Pensions & Investments (Jan. 22, 2007)

Direct investment by global institutional investors — corporate and public pension funds, endowments and foundations — represented 25% of the assets of the world’s largest hedge funds in 2006. In addition, about 22% of U.S. institutions expect to increase their allocations to hedge funds.

* Endowments, foundations, corporate pension funds, public pension funds

Source: Greenwich Associates/Global Custodian study

Collateralized debt obligations (CDOs) — securitized interests in pools of loans or debt — grew as a result of institutional investor demand. While interest in 2007 is up 35% from the year earlier period, it is expected to cool, in part due to subprime mortgage issues.

* First six months Note: Totals might not add up due to rounding. Sources: Securities Industry and Financial Markets Association; Thomson Financial

About one-third of U.S. pension plan sponsors have adopted new strategies in response to the aging work force and changing regulatory environment. Another 30% expect to do so during the next two years.

Implementation of New Investment Strategies

Source: Greenwich Associates’ 2006 U.S. Investment Management Research Study

Related Links

Bank for International Settlements
The organization fosters international monetary and financial cooperation, and provides semiannual statistics on the global OTC derivatives market.

International Swaps and Derivatives Association
The trade association represents participants in the privately negotiated derivatives industry.

“Exploring the Hedge Fund Universe”
Read the article from the April 2007 issue of Point of View

“Emerging Markets Investing - Efficiently Adding Emerging Market Equities to a Global Portfolio”
Download the Northern Trust white paper from January 2007

“Perspectives on Private Equity”
Read the article from the October 2006 issue of Point of View

Global Megatrends
“Asset-Mix Shifting in Institutional Portfolios,” October 2006

Past performance is not necessarily a guide to the future. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Index performance is based upon information provided by the index providers. There are risks involved with investing, including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and asset allocation models do not promise any level of performance or guarantee against loss of principal.

Northern Trust Global Investments (NTGI) comprises Northern Trust Investments, N.A., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and Northern Trust Global Advisors, Inc., and its subsidiaries.

This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy or product described herein. This information is not intended as investment advice and does not take into account an investor’s individual circumstances. Opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed.