If the world of investment consulting were a kitchen, then Hewitt Associates LLC would be turning up the heat with Andrew Tunningley as the head chef. Appointed as global strategy leader for investment consulting in October 2009, Mr. Tunningley already had made a splash in the U.K. During his tenure as head of Hewitt's U.K. investment consulting practice between 2003 and 2009, annual revenues nearly tripled. He was also responsible for initiatives such as the medium term asset allocation team, which allows for a more dynamic approach to investment consulting. The aim of that approach is to give clients not just a long-term strategic view but also an awareness of the markets at any particular point in the economic cycle.
However, the transition from the U.K. to the international stage will prove challenging, as Hewitt's main competitors — Mercer LLC and Towers Watson & Co. — have traditionally dedicated more resources to expanding their investment consulting businesses globally. But Mr. Tunningley is no stranger to competition. In 1996-'97, he was a part-time investment consultant and part-time professional rugby player. Highlighting the realities of the sport, he said he played his final professional game with five broken fingers. “At least I don't have any broken bones today,” said Mr. Tunningley, who is based in London, “and I'm not in danger of breaking any bones.”
How will you develop the investment consulting business globally? We're aiming for double-digit growth through organic and inorganic means. This might include recruiting or retraining people. ... We'll also be building through acquisitions and other mutually beneficial relationships. Part of my role is to work out where, and more importantly, when to go into certain markets. For example, Japan is really interesting at the moment. There are big changes (in the regulatory requirements affecting Japanese corporate pension plans) coming in 2012. When you look around the market, some of our competitors have been downsizing and letting people go. ... The fiduciary management model has really taken hold in the Netherlands, but has it really delivered? Or has that created another set of problems? Part of my job is to get a good sense of the dynamics of the particular markets to make sure that we are investing in areas in which we can be competitively strong and get a good return.
What about emerging Asia, and where is Hewitt positioned? Firstly, we're not major players there today, but we are seeing interest. We've been picking up some business in the Far East this year, so we can support that statement. If you stand back from investment consulting for a minute and look more broadly, Hewitt has a very large business in both India and China, so it will be a surprise to me if we don't have more of an investment consulting presence in what we see as core markets. What I'm not going to encourage developing is a 'flags on the map' strategy. We're not trying to create an empire here. We will only be in places that are right economically for us to be there.
Why has Hewitt decided to put more emphasis on global expansion now? Investment consulting within Hewitt has been successful but very much a satellite part of the business, whereas now it's very much a core part of the business. ... Pensions consulting (for defined benefit funds) today — as opposed to three to five years ago — involves a deeper skill set. You have got to get your assets set up right within a clear risk framework so that you can have the confidence to be able to pay the pensioners. That's a big part of what Hewitt is there to do, but we're also far broader than that as a company. When the day comes — and it will come, when (DB) pension work starts declining rather than growing — there will be other things that we will be doing. We won't be doing defined benefit consulting work forever.
Are you referring to the potential in DC? On the other side of (DB) is a growing asset pool in defined contribution. How many consultants have made a strong business out of defined contribution? Not many. It's not the end of (DB) yet, but the direction of travel is clear. ... I think DC hasn't quite reached the level that defined benefit has, and while there are very different issues and therefore very different solutions, I think defined contribution needs to evolve to survive.
Throughout the financial crisis, how was Hewitt able to help institutional clients in the context of asset allocation? We can't say that we saw the credit crisis coming, but we did see that credit was being mispriced. Typically, we encouraged clients not to have credit exposure going into the crisis. We had also been spending some time helping clients get out of real estate going into the crisis. The important thing is not only getting it right getting out but also when to get back in. I was told very early on in my days of investment consulting that there are two parts to every investment decision: the first is whether to buy or sell; the second is to reverse that decision, and that is quite hard. If you look at how our clients performed in the last three years, not only did they do well coming out of the crisis at the end of 2008, but also they were helped to rotate their portfolio back into the assets that subsequently have grown. We were defensive when we needed to be, but we haven't lost all that ground as the markets have recovered.
Is there any advice you wish you had given in the past two or three years, but didn't? If you take 2009, I think we could have gone a lot stronger back into equities than we did. ... But we took the view that equities were still risky assets, as there is a lot of uncertainty around the world that indeed has continued into 2010. I think over the entire (economic) cycle, we'll prove to be in the right place. But on a very short-term basis, we might have been better off encouraging clients to overweight equities more than they did.
Where should clients' portfolios be positioned looking ahead? There are a lot of uncertainties, for example, surrounding quantitative easing and its effects on equity (when governments around the world tighten monetary policy). But what's interesting to us is how that's likely to play into bonds, and into yields, and therefore — into pension funds' health.
How should clients approach their fixed-income portfolio? In general, we haven't seen as much emerging market debt as I anticipated, nor as much aggressive or unconstrained bond mandates. Many of our clients expect more alpha out of their equity and alternative portfolios than their bond portfolios. That's something that needs to be questioned.
Are there any other long-term developments potentially impacting institutional investors' strategic plans? There are two things that have started to emerge, and I would like to see them develop more in the long term. The first is the transfer (of wealth) from west to east. That's happening and we can see that. What's interesting to see is how that then develops in the capital markets and whether we'll get a transfer of investments also going from west to east. The other is sustainable investing. I think we're seeing quite a lot of demand for investing in themes of a sustainable nature. I'd like to see investors taking it more seriously, to care about having the investments deliver but doing it in a sustainable way. There's a huge increase in money flowing in that direction, so either a lot of people are wrong or (sustainable investing) will become a larger part of investors' strategies.
