Northern Trust on Gulf buildout, eyes pensions

Despite tough market conditions in the Middle East, US financial services group Northern Trust is moving to add five executives in the region, with an eye on regional plans to expand pension coverage.

Four of the individuals will be based in Riyadh, the Saudi Arabian capital, where there are already eight staff, and one will join Sheldon Woldt, head of the Middle East, in Abu Dhabi. The US asset management and servicing group has already made three offers, said Michael Slater, head of Saudi Arabia.

Northern Trust declined to provide information on the new hires until they are officially employed, except to say that they would all focus on asset servicing. The firm had advertised for a head of relationship services in January, but did not confirm whether it had filled the post.

These recruitment plans appear to buck the retrenchment trend in the GCC investment industry. Both retail and institutional investors are swiftly pulling money from funds, largely driven by negative sentiment over the oil price collapse. And aversion to emerging markets globally is not helping matters.

Still, Northern Trust’s buildout comes on the back of steady business expansion, said Slater. It has seen 13% compound annual growth rate in regional assets under custody, administration and management since 2011, he noted, but declined to give more specific details.

Slater admitted there were “numerous headwinds” in the Middle East, but said the firm still saw significant growth opportunities.

For example, the authorities in Saudi Arabia are moving to build defined-contribution retirement systems more like those in the West. There is only a handful of such 'thrift savings' plans in the Middle East, noted Slater, while most companies run an end-of-service (EoS), defined-benefit gratuity scheme.

There have been discussions within the Ministry of Labor and Ministry of Finance in several GCC countries to develop a solution more closely aligned to Western schemes, he said. These thrift plans will be very similar to 401k plans in the US, added Slater, and therefore will not be reliant on government-backed schemes. The first one created last year was a benchmark test case, he added, declining to provide more details due to client confidentiality.

There are well over $100 billion in liabilities in the GCC region for EoS schemes, but the DC thrift plan industry is much smaller, with $20 billion to $60 billion in liabilities, said Slater. “A lot more needs to be done on [the DC scheme]

Another area of opportunity for the investment industry is the Saudi Arabian government’s work with local law firms to create a waqf, or Islamic trust structure, similar to a Western trust. Slater said such a move would be helpful for philanthropic purposes and creating different family structures passing on wealth, as well as for the evolving regional pensions industry.