Two U.S.-based investment consulting firms are partnering with counterparts in the Asia-Pacific region as a cost-effective means of extending their global reach.
Earlier this month, Segal Rogers-casey, New York, announced an agreement to share research on managers and investment strategies with Sydney-based investment consultant Frontier Advisors, calling the move a first step in forging a broader “global investment research alliance.”
Last month, NEPC LLC, Cambridge, Mass., said it would pay fees to GFIA, a Singapore-based investment consulting boutique focused on hedge fund managers and other alternative strategies, to supplement its own manager research efforts in the Asia-Pacific region.
Manager research is a core capability for investment consultants, and with U.S. institutional investors allocating ever-bigger chunks of their portfolios overseas, it's not hard to see why U.S. consulting firms would be looking for partners abroad, said Peng Chen, CEO, Asia (ex-Japan), for Dimensional Fund Advisors Pte. Ltd. in Singapore.
One investment consulting veteran, who declined to be named, said the pressure is greatest for midsize firms trying to compete with the handful of industry giants that boast global footprints: Mercer; Towers Watson & Co.; Russell Investments; Cambridge Associates LLC; and Aon Hewitt.
The consultant, who works for a midsize firm, said the need for more extensive manager research is especially acute when it comes to alternatives investment strategies. The consultant mentioned one potential institutional client that chose a bigger competitor, citing the winning firm's geographic reach in vetting private equity managers.
In a presentation at the CFA Institute's annual conference in Singapore on May 21, Keith H. Black, director of curriculum at the Chartered Alternative Investment Analyst Association, pointed to evidence that manager research can indeed make a material difference in sophisticated institutional investors' investment returns.
Citing data from the National Association of College and University Business Officers, Mr. Black noted that in almost all alternatives asset classes, endowments with more than a $1 billion in assets outperformed by an average of 300 basis points those with less than $500 million. He concluded that manager selection made possible by those big endowments' sizable internal teams accounted for much of the difference.
In a telephone interview, Erik Knutzen, NEPC's chief investment officer, said his firm's relationship with GFIA will help it keep pace with fast-evolving investment opportunities in the Asia-Pacific region, and bolster NEPC's ability to deliver best ideas to U.S. institutional clients. He noted that NEPC has decisions pending on a number of potential private equity and direct lending investment opportunities in the region.
In an e-mailed response to questions, Timothy R. Barron, Segal Rogerscasey's CIO, said his firm's tie-up with Frontier could yield immediate payoffs in researching market segments such as infrastructure funds, where Australia boasts a number of locally managed strategies.
For the broader Asian region, the fast-paced growth grabbing investors' attention and larger allocations has yet to be matched by the development of a deep bench of local asset managers, he said.
Even so, for Segal Rogerscasey's clients, the relationship with Frontier, and eventually other consulting firms around the world, should “give us increased and more efficient access to asset management capabilities in those regions plus a more geographically diversified perspective on macro events and portfolio construction,” Mr. Barron said.
