A handful of U.S.-based investment consultants continue to expand in a challenging Asia-Pacific marketplace dominated by sovereign wealth funds and national retirement plans, betting that the region's fast-paced growth will open up new business opportunities over the medium term.
Over the past five years, that quartet has continued beefing up initial outposts in developed markets such as Japan and Australia, and hubs in Singapore and Hong Kong, while moving farther afield in the region.
Mercer added an office in China in 2008 and another in South Korea in 2009; Cambridge opened a China office in 2011; Russell Investments launched operations in South Korea and China in 2007 and 2011, respectively. Towers Watson has investment consulting staff in Beijing, Shanghai, Seoul, Kuala Lumpur and Manila.
Most of those outposts are two- or three-person operations, in part reflecting institutional markets in the region that currently offer dramatically fewer opportunities for investment consultants than are found in the U.S. and Europe.
A survey this year by research firm Greenwich Associates found the 30 biggest sovereign wealth funds and national pension schemes in Asia account for roughly 90% of an $8 trillion pool of institutional assets in the region, not including the Japanese and Australian markets, noted Markus Ohlig, Greenwich's Singapore-based managing director, Asia-Pacific.
The survey of just over 220 institutional investors in the region with more than $250 million in externally managed funds found only 29% used investment consultants, compared with 89% of U.K. institutional investors surveyed and 84% of U.S. institutional investors, according to Greenwich. Contributing to that low demand, many big institutional investors in Asia also remain intent on expanding their internal management capabilities.
Greenwich's research found that Mercer and Towers Watson were the investment consultants tapped most often in the region outside of Australia and Japan, followed by Cambridge Associates and Russell, said Mr. Ohlig.
In Australia, however, two local investment consultants continue to dominate that market. JANA Investment Advisers, Sydney, had 37.2% of Australia's institutional assets under advisement as of June 30, and Frontier Advisors LLC, Melbourne, had 28.3%, according to Rainmaker Group, Sydney, a superannuation fund and investment management sector research firm. By contrast, Towers Watson claimed a 12.5% share; Mercer, 10.1%; and Russell, 7.6%. (Cambridge, which opened a Sydney office in 2007, decades later than its competitors, didn't rank among the top 10.)