Alternatives

Consultants increasingly step onto managers’ field

Some alternative investment managers say that more and more they are competing with consultants for money management business.

“There are some consultants who began life in fee-for-service that have expanded into their own secondary products, both separate accounts and funds on behalf of investors,” said Frank Morgan, New York-based president of Coller Capital-U.S., an alternative investment firm that invests on the secondary markets.

Mr. Morgan declined to identify these consultants. However, New York-based StepStone Group started out as a private equity consultant and then expanded in 2008 into investment on the private equity secondary market as well as co-investments.

Multiasset manager Neuberger Berman's alternative investment business also is having to compete with consulting firms that are forming their own fund-of-funds or separate account businesses in addition to their advisory business, said Anthony D. Tutrone, New York-based managing director, global head of the alternatives business at Neuberger Berman. “From our perspective, we think there are some conflicts there,” Mr. Tutrone said. “There is no doubt the conflicts can be managed if there is a separation between the advisory and fund-of-funds businesses.”

At least in real estate, a great deal of emphasis is put on alignment of interests among consultants that also are money managers, noted Peter Rogers, Chicago-based senior investment consultant in the manager research group of general investment consultant Willis Towers Watson PLC.

“We spend a lot of time analyzing the alignment of interest” as well as fees, fund terms and governance, Mr. Rogers said.

However, consolidation also results in increased capabilities, said Sanjay R. Mansukhani, senior manager research consultant in the New York office of Towers Watson Investment Services Inc., a subsidiary of Willis Towers Watson.

“Clients see bigger contrast between consultants that are smaller and consultants that have grown ... and bring a more diverse set of opportunities that can fill in the gaps,” Mr. Mansukhani said.

The merged firms can suddenly offer, for instance, more coverage overseas, direct investments, co-investments or investment on the alternative investment secondary markets, he said.

“There is a more stark choice for investors,” Mr. Mansukhani said.

Some investors prefer a smaller firm where they can rely on three or four people they deal with all the time, while others favor a larger firm with a diverse range of choices spanning asset classes, he said.