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Consultants

High-net-worth market provides Cambridge Associates a door to Asia

Cambridge Associates, the Boston-based consulting firm best known for its work with leading U.S. endowments and foundations, is anticipating strong business growth in an Asia-Pacific market where endowments and foundations are as rare as hen’s teeth.

David Druley, Cambridge Associates’ chairman and CEO, said in an interview in Singapore that the firm is picking up business in the region now from two other client segments: a fast-growing universe of ultra-high-net-worth family offices and big institutional investors, including national pension plans, sovereign wealth funds and insurance companies.

Asia-Pacific clients are a small but growing chunk of the firm’s business, accounting for roughly 70 of the firm’s worldwide roster of 1,100 clients, up from less than 10 at the end of 2006, a Boston-based spokeswoman for Cambridge said in an email.

Cambridge was founded a little more than 40 years ago as an endowment and foundation shop, but today private clients and pension funds are about “half of our business, and that’s where we see significant opportunity here” in Asia, said Mr. Druley.

“We’ll keep investing” in the firm’s offices in Singapore, Beijing and Sydney “to execute and make that happen,” including a senior hire in the coming year or so to help work with ultra-high-net-worth families in China and surrounding areas, said Mr. Druley.

A big “reason I’m in the area” — on the last leg of a three-week tour that took him to Tokyo, Beijing, Hong Kong and Mumbai before Singapore and a final stop in Sydney — “is because you’re seeing a real movement over the last few years in China (of) private clients forming family offices and starting to look more like Western ultra-high-net-worth clients.”

When they reach that point, “they start turning to us to help invest their portfolios” in an outsourced chief investment officer capacity, said Mr. Druley.

While that trend is a regional one, China stands out in terms of the scale of the opportunity. A generation of entrepreneurs in Asia, in particular those that made China’s economy the world’s second biggest, is increasingly looking to the U.S. and Europe for ideas on “how best to structure their own internal family offices, and how to invest,” noted Mr. Druley.

“We’re starting to see a real acceleration” in the thinking of those wealth creators about “what they’ll look like when they don’t have all their money invested in operating businesses,” he said.

One focus of those entrepreneurs has been on potential conflicts of interest, which Mr. Druley contends plays to Cambridge’s strengths as a privately held firm offering clients customized portfolios rather than proprietary funds of funds products.

The Cambridge spokeswoman said private clients account for roughly 25% of the firm's Asia-Pacific client base and 28% of its revenues. Almost three-quarters of those private clients started working with Cambridge over the past five years, while revenues from that client segment have grown at an annualized clip of 21% over that period.

Cambridge expects that high-net-worth market segment in the region to grow strongly.

Unlike in the U.S. and Europe, where a family office would typically hire one OCIO to oversee its entire portfolio, at present an ultra-high-net-worth investor or family office in Asia will often give more than one outsourcing firm a few hundred million dollars each, looking to learn how each invests, noted Alvin Tay, Cambridge’s Singapore-based managing director and head of Asia, in the same interview.

In that context, the hope is that as ultra-high-net-worth clients “gain more confidence in our approach,” they’ll give Cambridge more of their portfolios to manage, he said.

Familiar territory

The high-net-worth client segment isn’t uncharted territory for Cambridge.

Mr. Druley said high-net-worth clients have been a significant part of the firm’s business for 10 or 15 years, a natural evolution over the past three decades ago as “wealth generators” on boards and investment committees “came to us and said, ‘we see what you’re doing for our foundation or our endowment. Can’t you help us?’”

In an email, a Cambridge spokeswoman in Boston said high-net-worth clients accounted for 30% of the firm’s global revenues at the end of 2016.

When it comes to the ultra-high-net-worth client segment, meanwhile, Mr. Druley contended the big global consulting firms keep a relatively low profile, with Cambridge competing more frequently with big private bank players, such as Goldman Sachs Group (GS) Inc.

In telephone interview, Garry Hawker, Mercer’s Singapore-based director of strategic research, growth markets, said Mercer does “quite a lot of work” with family offices and ultra-high-net-worth clients, even if they’re a smaller percentage against the backdrop of Mercer’s bigger global business.

Mr. Druley said another reason he and Mr. Tay are spending more time in regional centers such as Tokyo now is “we see a real opportunity with these large, large institutions in Asia, whether they’re insurance, or pensions or sovereign wealth funds, to help them implement private equity, private credit and real assets mandates, whether (in) infrastructure or real estate equity or debt.”

That big client segment has been “one of the fastest growing parts of our business,” said Mr. Druley, who attributed some of the growth to a private ownership structure at Cambridge that allows the firm to make long-term investments and minimizes organizational distractions.

Cambridge’s founders own a majority of the firm, with two family office clients holding minority stakes and the remainder distributed among a couple of hundred managing directors at the firm.

Reduced demand

By contrast, several of the global consultants that compete in that big institutional investor space have either been involved in mergers and acquisitions in recent years — such as Willis Towers Watson PLC, Aon Hewitt and Russell Investments — or internal reorganizations, such as Mercer.

“All the stuff going on” at competitors “has been really great for our pension, insurance and sovereign wealth fund business,” he said.

Mr. Hawker said Mercer is “not seeing any reduced demand for our services from the institutional investors.” Executives at Willis Towers Watson and Russell couldn’t immediately be reached for comment.

Mr. Druley said the prospect of more private clients and big institutional investors in Asia looking for Cambridge to assume full or partial discretionary oversight of their investment portfolios likewise reflects broader global trends.

“We have over $50 billion” in private market assets that Cambridge either oversees in the role of outsourced investment officer, or what the firm calls “staff extension”: working side-by-side with the staffs of big, sophisticated institutional investors, helping them source and invest in private investments, said Mr. Druley.

“And that doesn’t mean showing up once a quarter,” he said. “It means every day helping them think about how to invest, risk management, sourcing ideas, things of that nature.”

That part of Cambridge’s business has come to account for about 80% of the firm’s revenues, far more than its revenues from traditional, non-discretionary retainer consulting relationships, he said. The Cambridge spokeswoman said that’s up from 50% in 2006.

Globally, 500 of Cambridge Associates’ 1,200 employees are focused on investing, and Mr. Druley said “some of the actions we’ve taken over the last year are reorienting our staff away from project/retainer consulting to helping institutions, either on staff extensions or OIO.”

Mr. Druley said his latest trip to the region included a four-day conference in Mumbai, with 30 of the firm’s clients globally coming in to evaluate potential investments in India.

At present Cambridge has no immediate plans to add a fourth office in the region but “we’re constantly looking at these things,” said Mr. Druley. On March 27, the firm opened its latest office in New York, in part because it has a significant client base there and in part to be able to hire talent Cambridge otherwise might not be able to bring on, he said.