The November issue of our flagship monthly Money Fund Intelligence newsletter ($500/yr) features an article entitled, "Quiet Giant of Cash: Q&A w/Northern Trust." The article, which we excerpt from below, interviews members of Northern Trust's Money Market Fund team, including Steve Everett, Director of Balance Sheet, Assets, and Insurance, Peter Yi, Director of Money Markets, and Investment Strategist David Rothon. Northern manages over $70 billion in money funds, and the company ranks even higher among cash and short-duration managers when bank trust and securities lending pools are counted in the totals.

Q: How long has Northern been running money funds? How important are they? Everett says, "Northern has been running money funds since the beginning of the 1980's. It is a material business for us.... We clearly manage more cash investment products than our money market funds, and that product suite is a meaningful business unto itself. We were also the 4th fund manager to launch offshore funds in Dublin back in the mid 1990's, so we were an early player across the Pond."

Q: What's the biggest challenge in running a money fund? Yi says, "The biggest challenge for a money fund is really finding that balance between principal preservation, liquidity management, and offering a competitive yield. We believe you should also have a conservative, consistent, and unwavering investment philosophy and investment process that will function well in any environment. Another challenge is having the right infrastructure to support your money funds. That's going to include having economists, research analysts, compliance officers, traders, trading support and of course experienced portfolio managers."

Q: What's been the key to Northern's success in the money markets? Yi says, "One has been our investment philosophy. Two has been the benefit of a strong bank parent with a cash management business that is core to its overall corporate strategy. And third has been offering a solutions-based approach to cash management. We've always managed our money funds conservatively. We've always put principal preservation above all else, followed by liquidity, then finally yield. We believe this conservative positioning really defines us as investment managers."

He tells MFI, "With the new money market proposals likely to be passed and implemented in some form, I think it's realistic to believe that our approach will now become standard. We don't expect these new proposals to affect our day-to-day management of our money market funds. Where we see real benefit is in continuing to be a leader in a stronger and more stable industry. Given our more stringent practices and investment process that emphasizes credit research and risk management, we will be positioned well when these proposals are adopted."

Finally, Everett adds, "Our investment philosophy is not a reaction to what has happened in the markets. That is the way we've always been ... and we don't waver from that approach. Our consistent philosophy and approach has been an important ingredient in how the firm has become successful over time. Maybe a few years ago, people may have thought we were too risk averse and an underperformer, and now they think we're brilliant.... We're really neither. It's more our strategy and our philosophy that we stick to and believe is appropriate in delivering competitive returns in a risk controlled environment for our clients."

To see the full MFI interview, ask Pete for a copy of MFI, or see the reprint version on Northern's website.

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