By Ian Fraser
Published: Financial News
date: 20 October 2008
MERCER Investment Consulting, like most other investment advisers, has been changing its spots to suit the highly volatile and unpredictable economic climate.
Traditionally, firms like Mercer focused on advising institutional investors on their long-term asset allocations and the selection of fund managers. However, that is not the highest margin business and over the past 18 months Mercer has reinvented itself as more of a risk-taker and a decision-maker. The firm, a subsidiary of US-based insurance giant Marsh & McLennan, has parked its tanks on the lawn of multi-managers.
Tom Geraghty, head of Mercer Investment Consulting in Europe, a role he took over in May when his predecessor Andrew Kirkton was made global head said: “The credit crisis has revealed a growing appetite among institutional clients to delegate more responsibility for the investment process to investment consultants.”
Mercer’s ‘implemented consultancy’ model, also known as “multi-manager on a separate account basis”, involves clients handing Mercer discretionary powers to hire and fire asset managers. In exchange, clients pay higher fees, which are linked to the performance or otherwise of the chosen managers.
Geraghty believes the model suits pension funds because it speeds decision-making. Advising trustees and then leaving them to pore over manager selection can take an inordinate amount of time, he said. “Trustees can be sitting on an asset manager six months after the decision to fire them.”
However, the rise of such implemented consulting strategies has not been universally welcomed despite being embraced by rival consultancies including Watson Wyatt and Aon Consulting. One fund manager said: “The consultancies are moving from being advisors to becoming decision-makers. The trouble is, how can they objectively recommend their own implemented solution? I believe their main motivation for doing this is to get a bigger slice of the investment management fees.”
Consultants meanwhile argue that the approach is about helping clients make the right decisions and for consultants to be held accountable for the performance of the managers they recommend. Geraghty believes that, at a time of unprecedented market volatility, clients are attracted to new, more responsive, models. And there is little doubt that the credit crisis is having a profound impact on clients’ asset allocation decisions.
He said: “There’s a growing interest in absolute return products. There’s a lot of de-risking going on. We expect to see more demand for liability hedging strategies among European clients.”
Mercer has also expanded its global reach in the past 12 months, and today has offices in 35 countries advising institutional investors with assets of $3.5 trillion (€2.6 trillion). In Europe its largest presence is in the consultant-friendly markets of the UK, Ireland and the Netherlands but it has found its feet elsewhere in Europe, including France, Germany, Spain, Portugal, the Nordics, Italy and Switzerland.
Geraghty, however wants to see further expansion into Europe, backed by Kirton’s global strategy and he is not ruling out the acquisition of boutique consultancies or joint ventures. Listed among his other challenges are the need to retain talent and find new ways of interacting with clients. This is the sixth consecutive year that Mercer has landed Financial News’ award for European investment consultancy of the year.
This article was commissioned by Financial News, published by Dow Jones, to coincide with the title’s 10th annual awards for excellence in European asset management. To read the article on the Financial News website please click here