2010 started with the completion of the merger between Watson Wyatt and Towers Perrin, creating one of the largest global consultancy firms. The merger is yet another proof of the consolidation trend among consultants and asset managers that only last year saw JLT buy HSBC Actuaries and Consultants and the acquisition of Barclays Global Investors by BlackRock.
Changes are not only coming in the form of consolidation, but also in terms of the range of services being offered by consultants and asset managers. Over the last decade, and especially in the last couple of years, the line between the type of services offered by consultants and fund managers has blurred. Many consultancy firms now provide implemented consulting and multi-manager services to their clients, at the same time as asset managers have expanded their offering beyond the supply of individual investment products to provide whole investment solutions and portfolio advice.
Two good examples of this shift are fiduciary management and liability-driven investment (LDI). Fiduciary management started with the outsourcing of certain investment or administration activities to a third party and has now evolved into a more far-reaching partnership between pension funds and asset managers that includes advice, something that in the past was mainly a consultant function. When it comes to LDI, the complexity of the strategies has resulted in a greater collaboration between consultants and fund managers, who are now working together to give investors a clear message about how the strategies work and how they are going to be implemented and monitored.
This blurred line between the consultancy and investment management worlds presents both challenges and opportunities. It is clear both parties can add value to the process of helping pension funds and other institutional investors to choose and implement the most appropriate investment strategies. But it is also crucial that trustees are clear as to who does what and there are no conflicts between the commercial interests and fiduciary responsibilities of the parties involved. For instance, there might be a conflict of interests in situations where a consultant advises a pension fund on manager selection and at the same time promotes its own fund management services to the client. In such cases, clients need full disclosure of who is responsible for what and how any potential conflicts are managed.
With more consultancy firms growing their investment management arms, we asset managers often find ourselves pitching for new mandates against consultants, and in some cases losing business to them, something that didn’t happen years ago. However, on the flip side, consultants are hiring us to help them with their investment management solutions. In this sense our relationship with some of the largest consultants has massively improved, so it is clear the changing environment does not just mean competition, but also collaboration.
Although situations where consultants and investment managers are pitching against each other will be more common in the future, scenarios where the two players work together along with the investor towards a common goal will be the norm, and in the end it will be the investors
who should benefit from this changing environment.
Julian Lyne is head of global consultants at F&C.
