Northern Trust Co. gave a substantially upbeat assessment of the global economy today despite the anemic recovery and the sovereign debt crisis in Europe.

At a press briefing in New York, Katie Nixon, the firm's chief investment officer for personal financial services, spelled out "windows of opportunity" for investors.

"The valuations in the U.S. markets are suggestive of attractive long-term returns," Nixon said. "Valuation is a poor short-term trading tool, but a long-term indicator of future equity returns."

The other speaker, Mary Ann Sisco, the firm's managing director of client solutions, gave an assessment of the firm's client activities from a wealth management perspective. Dave Blowers, chief executive officer of the eastern region, served as moderator.

Nixon said the "illiquidity premium" represents an opportunity for investors, many of whom are overpaying for liquidity. A good example is "the extremely low interest rates, and in some cases, negative rates, on U.S. Treasuries. Investors who can handle illiquidity will be rewarded handsomely for taking that risk," she said.

Another opportunity is in Europe, where banks will ultimately be forced to sell or deleverage tremendous amounts of distressed assets. This will present a boon for investors, particularly hedge funds and private equity funds, she said.

Nixon outlined several "inconvenient truths" about the economy. "We're bumping up against a debt to GDP level that really threatens economic growth across many economies. In the U.S, it's reasonable to expect that we're not going to have robust growth until we get the debt situation under control."

She also said that the credit default swaps of multinational companies like Exxon Mobile and Wal-Mart actually trade at lower multiples than the sovereign debt of many countries, even lower risk countries like Germany.

Low returns on investment-grade bonds can present a challenge for investors, she said. "What that means is that they have to take some equity risk or invest in high-yield instruments to meet their goals," she said.

The main push towards higher yield derives from near-zero interest rates that are forecast to extend well into 2014 and perhaps beyond, she noted.

Nixon described Northern Trust's current asset allocation posture as taking risk defensively, essentially underweight in European equities and overweight in U.S. equities, especially large caps, which have "fortress-like balance sheets."

In particular, the firm likes large caps with a dividend yield of the S&P 500 index, substantially higher than the 10-year U.S. Treasury bond yield. The current valuation of the S&P 500 index is near the low end of the 15-year range, she noted.

In terms of fixed-income, the firm is overweight in high-yield bonds and considerably underweight in investment-grade bonds, she said. It maintains a 6% allocation to gold as a hedge.

Sisco said clients are concerned about making sure they have enough money for themselves before irrevocably giving away assets to families or charities.

"It's that fear element," Sisco said. "They relate to wealth differently than they did four years ago."

Clients are holding back, taking advantage of the higher $5.12 million gift-tax exemption and are gifting less, she said.

To help clients take advantage of these opportunities, Northern Trust is making recommendations, such as building more flexibility in documents, inserting a trust protector, limiting the purposes of trusts-for children, for example-and gifting lower amounts.

"They're concerned about the amount of wealth they might be passing on," she said, "or about the inability to change documents after the gift tax is made."

Sisco said business owner clients are facing a time-sensitive decision to either sell their business in 2012 to take advantage of lower capital gains tax rates or look for a sale or transition in later years.

The key question business owners face, she said, is how much they have to grow their business to make up for the potential increase in taxes if they sell after 2012.

Business owners who don't sell need to consider transferring shares of the business to take advantage of the higher gift tax exemptions before the end of the year, Sisco warned.

"This is a short window of opportunity that no one should let pass by," she said.

Chicago-based Northern Trust, an old-line trust firm, has $717 billion in assets under management, and $4.6 trillion in assets under custody or administration. The firm serves more than 20% of the Forbes list of 400 richest Americans as clients.

Northern Trust's corporate and institutional services include a broad swath of investment and custody services. Clients range over 40 countries, including offices in Melbourne, Abu Dhabi and Stockholm.

-Bruce W. Fraser