Are consultants set to become the modern day saviours?

Tue Jul 3, 2012

Email a friend
  • To include more than one recipient, please seperate each email address with a semi-colon ';', to a maximum of 5 email addresses




By Niki Natarajan

While Troy was being destroyed in its last battle against the Greeks, Virgil's Aeneas left the city and led a quest to find a new home. On this journey Aeneas had to descend into Hades, the underworld, paying the ferryman Charon to cross the river Styx in search of the Elysian Fields; the final resting places of the souls of the heroic and the virtuous.

It was a treacherous hero's journey - much like one that all involved in the world of hedge fund investing, not just funds of funds, are currently undertaking. Pension funds have almost always paid a ferryman to help them cross the river of asset classes to get them from one world of investing to another.

And until recently, to get to hedge funds investors have had to pay the ferryman -funds of funds - as well as sedating Cerberus, the three-headed hound that guards the gates of the pension fund world.

In the last few years, however, only a few investors have been able to get beyond the performance purgatory of the three-year investment timeframe to find their Elysian returns, with or without hedge funds.

To begin with, like Google, many of the multi-faceted consultants have gone from being the gateway to the gatekeeper of the pension fund world and as such entering the asset management arena, seemingly condemning funds of funds - like the dead souls that could not pay Charon - to wander the shores aimlessly looking for investors. But are they really?

On the road to the Elysian Fields some funds of funds like Grosvenor Capital Management have taken on pension fund talent such as Michael Travaglini from Massachusetts Pension Reserves Investment Management Board and are said to be offering their expertise in the form of advisory/quasi consulting services.

Like Aeneas, other even braver funds of funds are facing Cerberus. Instead of sedating him, these managers are dancing with the devil and are in talks with the consultants to collaborate so that their clients get the best manager selection expertise possible.

Proving that befriending the pension funds' gatekeeper is likely to gain an audience is the Merchant Navy Officers' Pension Fund. By counter-intuitively hiring consultant Towers Watson as the outsourced chief investment officer, for all assets including hedge funds, this investment pioneer has actually seen better performance that its peers.

The world at large is at war: at war with the economy; the climate; the environment; so is continuing to fight to hold onto what some believe to be an out-dated model the right thing to do? Is the so-called Trojan horse actually the modern day saviour?

This controversial topic will be the subject of a session entitled Consultants: Trojan Horse or Modern Day Saviour? at the two-day InvestHedge Forum in October - and likely to be one of the most highly attended sessions as more and more frustrated funds of funds rightly or wrongly look to find ways to work with or collaborate with both the investors and their gatekeepers.

But it is not only the funds of funds that are teaming up with the consultants. Other independent advisors such as Sovereign Investment Research in Australia have realised that scale and access are the name of the new game. Key team members including Ray King, Scott McNally and Sarah Azzi are set to join Mercer Investments as members of their alternative research boutique. And as a sign of solidarity, it seems that most of Sovereign's clients will transfer over too.

But in a twist that will see Mercer's investment manager head rear higher than that of advisor or consultant, Stanley Mavromates, chief investment officer of the $50 billion Mass PRIM Board is joining Mercer Investments as CIO for the Americas.

It would seem that the "if you can't beat them, you join them" attitude will see asset management and advisory converge from both sides at least in the interim - at least as long as performance and fees remain elusive.

Yet despite all of this, pension funds looking for performance will still need to have their own golden bough to gain access to the Elysian Fields, namely the confidence and ability to ask more and better questions to their advisors in whatever form they eventually become. Something that Nick Greenwood of Royal County of Berkshire Pension Fund has started to do.

As Andrew Waring of the Merchant Navy Officers' Pension Fund has discovered, once one knows what one is looking for in terms of investment values and beliefs finding the right partner is all the more simple.