"Six studies of emerging investment manager performance spanning 16 years of stock market history have demonstrated that the smallest firms, collectively accounting for only 1 percent of institutional market share, enjoyed a consistent advantage over industry leaders," said Ted Krum, CFP, vice president, portfolio management at Northern Trust Global Advisors (NTGA), the multi-manager arm of Northern Trust.  "Since this edge is most dramatic in bear markets, we have worked to update our results for the tumultuous five-year period ending 2008."

The research update found that firms with less than $2.6 billion in assets under management (AUM), the threshold AUM level equating to 1 percent market share, delivered stronger performance with less volatility in the five-year period ending December 31, 2008.

Findings from the study of five-year performance data for 476 active core U.S. equity products managed by 282 firms, both emerging and established, with a total AUM of $11.7 trillion include:

• One-third of firms in the top quartile of performance had less than $2.6 billion in AUM.
• Small firms in aggregate outperformed the Standard & Poor's 500 Index six times out of eight in down market quarters.  They outperformed the index by an average of 0.51 percent per down-market period, the best of any of the groups studied.
• The median small manager outperformed the median large firm by 0.41 percent per annum, for cumulative savings of more than $4 million on a typical $200 million institutional allocation over the five years studied.  The advantage was similar at the top and bottom quartile marks, and across value, growth, and core investment styles. However, the margin of victory was narrower than in past studies.
• Small firms delivered these results while taking less risk, as measured by standard deviation. On an equally weighted composite basis, small firms lost -0.74 percent per annum versus -1.23 percent for large firms, with an annualized standard deviation of 13.9 percent (matching the S&P 500) compared to 14.7 percent for the largest firms. A larger standard deviation implies greater risk in a portfolio.

"We hear often that institutional clients hire the largest firms because they view them as safer than emerging firms.  In reality, this decision may expose clients to excess volatility without adequate compensation in terms of full-cycle performance," said John McCareins, investment program manager for NTGA. "These results imply that manager selection skills may be applied more profitably to turning over rocks in the small firm universe than in selecting the household names of investment management."

NTGA has studied the relative performance of emerging managers since the fourth quarter of 1988, as part of its Emerging Managers Program, which invests nearly $3 billion with approximately 50 emerging investment management firms through manager-of-manager programs. The manager-of-managers approach is designed to help large institutional investors access these smaller firms by addressing capacity constraints and concerns about due diligence, business risks, and administrative overhead.

Northern Trust Global Investments (NTGI) is the multi-asset class investment management business of Northern Trust Corporation. 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 and its subsidiaries.

About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, fiduciary and banking solutions for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 15 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2009, Northern Trust had assets under custody of US$3.2 trillion, and assets under investment management of US$558.9 billion. Northern Trust, founded in 1889, has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit http://www.northerntrust.com.