Customized investment solutions and strategic investment partnerships often cross the line into offering the kind of advice traditionally provided by investment consultants, but most consultants aren't complaining too loudly.
“Our conclusion is that stepping on our toes a little bit to move the ball forward is OK,” said Timothy R. Barron, president and CEO of Rogerscasey Inc., Darien, Conn. “Do I like having my toes stepped on? No; nobody does. But it's one of the prices we pay for enhancing the returns of plan sponsors going forward.”
That said, consultants caution that some managers' customized investment solutions and strategic partnerships are more about gathering assets than they are about addressing investors' needs.
“The big, multiasset-class players are Kool-Aid places — they actually believe their own press,” said an investment consultant who asked for anonymity. “Nobody is good at all things all the time.”
Genuine problem solvers and good solutions do exist, the consultant said, but they often come from smaller players. “There are dozens of those out there. But when we come to multiasset-class firms that actually would have that capability — up in the C-suite they're driven by gathering assets.”
Consultants stress that not every money manager is selling solutions — it's more the exception than the rule.
Fixed-income investing is an area where a lot of customized solutions and strategic partnerships are being set up, because the asset class isn't as homogenous as many institutional investors once thought, said Joseph Nankof, partner, Rocaton Investment Advisors LLC, Norwalk, Conn.
Many institutional investors are taking a deeper look at their fixed-income portfolios and many are allocating more deliberately between different kinds of domestic and global fixed-income securities, down to the level of different sectors within the corporate credit subasset class. Because of the increased complexity, institutional investors are increasingly seeking customized advice and solutions from bond managers, Mr. Nankof said.
“We've always taken the view that, if firms have something to offer our clients, they'll find them one way or another,” Mr. Nankof said.
“We're not above learning something from someone else.”
He added that “it's productive and part of our job to help clients find these people and bring them to the table.”
Rocaton evaluates solutions providers “the same way we evaluate the skills of managers to produce alpha. There's a lot of qualitative evaluation,” he said. “We interview them the same way we do” for a standard active mandate.
Institutional investors do not universally crave these close relationships and strategic partnerships, said Goran Hagegard, principal, Greenwich Associates LLC, Stamford, Conn., which provides consulting services to money managers.
“Not everyone wants customized solutions and strategic partnerships. It's very important for money managers to recognize this and not to push too hard,” Mr. Hagegard said.
Some institutional chief investment officers “don't want it at all. They rely on a consultant for advice and just want the manager to perform and to report on that performance. Some simply have neither the inclination nor the capacity for intense — and time-consuming — relationships with their money managers,” Mr. Hagegard said.
Other institutional investors may occasionally accept consulting advice from their money managers, perhaps on specific projects, but don't maintain a consistent strategic partnership, Mr. Hagegard said.
Most institutional investors who are open to establishing strategic partnerships limit themselves to just a few of these relationships, limited by their own capacity, he said.
Chief investment officers “are very interested in tactical ideas, and to the extent these firms give them ideas they can implement through these strategic partnerships, they like this,” said Stephen L. Nesbitt, CEO of Cliffwater LLC, Marina del Rey, Calif. n