LOS ANGELES -- The former Asset Strategy Consulting LLC has lost two public fund clients and has closed its doors to new consulting clients in its evolution into an Internet-based service provider.
In its integration as a key part of the Internet portal operator Plan Sponsor Exchange Inc., officials are shrugging off the loss of the $3.6 billion San Bernardino County (Calif.) Employees' Retirement Association and the $945 million Marin Employees' County Retirement Association, San Rafael, Calif.
In fact, the firm resigned the San Bernardino account, believing the fund would be better off with a full-service consultant. "It was clear that they preferred to have a traditional model of consulting," said Lawrence E. Davanzo, formerly managing director of Asset Strategy and still untitled in his new post.
The developments reflect the state of flux at Wayne, Pa.-based Plan Sponsor Exchange, which itself was to announce a name change March 20 to InvestorForce Inc., reflecting its desire to reach the entire universe of institutional investors.
The dizzying pace of changes still leaves observers trying to puzzle out one thing: How do InvestorForce officials plan to make money?
A back-of-the-envelope analysis leaves many scratching their heads. After all, its manager database will be free to plan sponsors and consultants, and its consulting arm is slashing fees about 75%, to the $25,000 to $50,000 range.
Meanwhile, the parent company is on a hiring binge, planning to add 25 salespeople to promote its website to institutional investors, on top of its existing 120-person staff.
While keeping their cards close to the vest, InvestorForce executives said they have many plans to generate revenue.
"You could come here for one day, and I could blow your mind," Mr. Davanzo said.
"Our revenue model going forward is not consulting. We will not be taking on consulting" clients.
Despite widespread belief that InvestorForce plans to make its bucks on advertising from the hyperlink "showcases" on its site -- now sold to 30 money managers and others for roughly $40,000 each -- Mr. Davanzo said advertising is "one small part of it."
Instead, the magic formula basically boils down to one thing common to all Internet-based strategies: transaction volume.
While officials say a lot remains to be revealed, here are the early signs of how the company hopes to build revenue:
* It will charge money managers an annual fee of $7,000 per organization to access its database. (An earlier idea to charge managers for posting data was scrapped.)
* InvestorForce officials now say they plan to charge a fee of roughly 5% of the first year's revenue for accounts that money managers win through the website's do-it-yourself request-for-proposal process.
* Plans also are in the works to create a database of consultants, charging a similar 5% finders' fee, although revenue here is expected to be negligible.
* The website's online meeting center -- enabling managers and others to make presentations electronically to a number of investors in distant locations -- has a revenue-sharing feature with Webex, San Francisco.
* InvestorForce also offers fee-based advice to managers on using technology in their marketing.
* The website's infant news service might generate revenue in the long term.
* Down the road, InvestorForce may pursue the registered investment adviser market, which advises high-net-worth individuals.
Keep expanding
To keep building traffic at the site, InvestorForce plans to keep expanding its database. For example, it will broaden its 401(k) feature to service larger plans, and will add an emerging manager database targeted to public plans, and a hedge fund universe.
Key to InvestorForce's efforts is to make its database of more than 1,000 managers and 3,000 products the dominant industry standard.
This way, plan sponsors, consultants and money managers would be forced to use the database repeatedly, generating traffic to the site and additional potential for revenue. In February, the site generated 64,044 page views with nearly one-quarter coming from plan sponsors, a relative drop in the bucket.
Frank P.L. Minard, the company's president, said it is inefficient for consultants to maintain so many separate databases and for managers to complete hundreds of RFPs a year.
"When I was at Morgan Stanley (Dean Witter Investment Management), we did 800 RFPs a year. So it's suboptimal for the industry to fill out the same information 800 times," he said.
Previous efforts to create a single industry questionnaire or database have failed, as consultants sought to maintain their own data.
Mr. Minard said consultants can use InvestorForce's template and "tweak it. The boilerplate information is the same."
Consultants could run searches through InvestorForce's database, without paying a fee, avoiding costly maintenance of their own database, or buying one from a third-party vendor, officials said.
And both consultants and institutional investors would gain access to either small firms they might not know or to big managers they might have not critical mass to reach, Mr. Davanzo noted.
Working with AIMR
In an attempt to bolster the database's credibility, InvestorForce officials have been working with the Association of Investment Management and Research, Charlottesville, Va., to ensure their data meet AIMR's performance presentation standards.
Chip Roame, managing principal of Tiburon Strategic Advisors LLC, a Tiburon, Calif.-based firm that advises brokers and money managers, said InvestorForce's online database is "terrific, providing a lot of the good fundamental database you need to get started." He also praised the search and survey material available on the site.
Lac Vuong, managing director at Effron Enterprises Inc., White Plains, N.Y., noted his firm's Plan Sponsor Network database is twice the size of the new rival's database, with more than 1,600 managers and 6,600 products.
He said his firm provides added value by interpreting data in person for its 250 clients. "Institutional clients need handholding services," he said.
In addition, he questioned whether InvestorForce's database will remain free over the long run.
A broader market
What InvestorForce officials also are doing is focusing on a much broader segment of the institutional investor marketplace than that served by the typical consulting firm.
Many midmarket institutions, with less than $500 million in assets, are underserved, Mr. Minard said. He noted 64% of the site's 1,300 registered plan sponsors have less than $1 billion each in assets.
Firm officials also are courting consulting firms, particularly broker-related consultants and financial planners. And by no longer competing for consulting clients, the firm no longer has a conflict with a key constituency.
But InvestorForce clearly can't satisfy everyone.
At the Marin Employees fund, trustees wanted a traditional consultant relationship, said Norman Klein, retirement administrator. Marin trustees also were concerned that the consultant would not be able to recommend managers who advertise on the site, who include some of the biggest names in the business, including Capital Guardian Trust Co., Delaware Investment Advisers and INVESCO.
Others cited concerns that the firm would derive most of its revenue from managers. Dick Charlton, president of New England Pension Consultants, Cambridge, Mass., questioned whether a consultant would recommend terminating a troubled manager if it was paying hefty fees to InvestorForce.
Operating in a fishbowl is an incentive for any public fund to avoid any appearance of a conflict of interest. Trustees "would be very sensitive to any appearance of any conflict of interest," said Anne Bahr, executive director of the $4.3 billion Milwaukee Employees' Retirement System. The fund, an InvestorForce client, is in the process of preparing an RFP for a consultant as part of a normal review.
Still, pension officials expressed confidence in the consultant.
"Frankly, I think these people are of the highest integrity and I could not imagine they would jeopardize their clients' relationship," said Carolyn Hamilton, chief investment officer for the $12 billion San Francisco City & County Employees' Retirement System.
