MELBOURNE, Australia - William M. Mercer & Co.'s Australian subsidiary has taken a step beyond its traditional asset consulting and superannuation fund administration to establish a manager-of-managers fund for clients' superannuation funds.
It is the first time a Mercer company has taken this step and, according to Bruce Cook, the Asia-Pacific chairman of Mercer, the move will be closely watched by Mercer operations in the United States, Hong Kong, the United Kingdom and South America. It also should interest Mercer's competitors in the consulting/administration arena in Australia - firms like Towers Perrin and Sedgwick Noble Lowndes.
Until now, the only asset consultant that operated funds for clients is John A. Nolan & Associates, Melbourne, which runs small specialist equity funds operated on a manager-of-managers basis. Frank Russell Australia, Sydney, also is considering establishing a specialist development capital fund.
But the Mercer move appears more focused on its large administration business, where Mr. Cook makes no secret of the fact that Mercer wants to expand its role among funds with 50 to 250 members, leaving the field for funds with fewer members to self-managed funds or to master trusts operated by smaller organizations.
In particular, Mr. Cook says the Mercer master trust should reduce the costs of running funds. Mercer appears to have aimed at least to match the cost structure of the industry funds run by trade union-industry boards.
With the industry funds likely to have the fastest growth in the near future (they are the favored funds for the growing compulsory Superannuation Guarantee Charge contributions) they pose one of the major threats to Mercer's administration business.
The Mercer Master Trust will have a choice of four investment options - a cash-plus pool, a capital-stable pool, diversified growth and a 100% stock pool, all initially at the employer's discretion. Sometime soon, members will also be allowed to choose their own investments.
The initial managers for the pool of funds will be J.P. Morgan Investment Management, Melbourne, for the diversified and share pools and SBC Australia, the 60% Swiss Bank Corp.-owned group from Sydney, for the cash-plus and capital-stable pools.
Mercer's Mr. Cook says his firm has never actually invested fund assets and adds "we will not do so in the future. We are really doing very little more than what we currently do for our many smaller fund clients, but in the future, it will be done much more efficiently."
For Mercer, the arrangement will mean the firm will start earning fees based on percentages of assets under management instead of charging hourly consulting fees. The master trust will charge 1% on contributions into the trust, $48 a year fee per member (declining for larger numbers) and a 1.5% a year management fee.