Northern Trust Publishes Alternative Investments White Paper

Robbie Lawther

24 October 2017

Asset management firm has released a white paper that outlines steps investment managers and investors can take to potentially achieve greater transparency in alternative investments such as hedge funds, private equity, infrastructure, real estate and natural resources.

The paper, Alts Transparency: Finding the Right Balance, says there should be a “collaborative partnership between the buy and sell sides” to develop industry standards, and says a “more nuanced conversation about transparency” between asset managers and investors can lead to a strategic approach for achieving transparency objectives.

The central recommendation is that organizations should consider developing a transparency “tool kit” to facilitate decision-making and achieve consistent standards, processes and controls through a four-step process:

1. Identify Stakeholders – from executive leadership to operations teams to trustees and fiduciaries
2. Prioritize Transparency Objectives – whether holdings, valuations, liquidity, fees or other requirements
3. Rank Key Questions – including what “transparency” means to the organization and what tradeoffs may be needed to achieve the end goal
4. Establish Best Practices – for due diligence, investment performance and annual reviews

“Our February survey of 200 asset managers and institutional investors found that transparency has surged in importance since the 2008 financial crisis, but industry best practice lags demand,” said Penelope Biggs, chief strategy officer, corporate and institutional services. “While we acknowledge that no magic bullet exists, it is possible to achieve consensus around key issues and ultimately enhance results. We believe the path forward involves reframing the conversation between managers and investors to focus on practical opportunities to drive transparency and best practices across alternative assets.”

Biggs added. “Our goal is to provide a robust framework for this discussion, with a combination of original research into the views of sophisticated global investors and Northern Trust’s recommendations based on decades of experience working with both asset owners and asset managers to support investments in alternative asset classes.”

The white paper is a follow-up to a survey conducted earlier this year by the economist intelligence unit for Northern Trust, which found that transparency remains a top priority among alternative investors.