2 investment consultants expand reach with Asian partners

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.

Executives at the Asia-Pacific firms in the recent agreements likewise said they expect benefits, both tangible and intangible, from the partnerships.

In a telephone interview, Damian Moloney, CEO of Frontier Advisors, said the partnership with Segal Rogerscasey should help his firm to add value as its superannuation clients continue to grow and bolster the depth and sophistication of their internal research teams.

If the next phase in asset allocation finds those superannuation clients supplementing global and Australian mandates with more U.S.-centric and U.K.-centric allocations, the relationship with Segal Rogerscasey should help Frontier identify “best opportunities, best ideas,” said Mr. Moloney, while “giving us an answer” to the big foreign investment consultants marketing their global research capabilities.

Likewise, Peter Douglas, founder, principal and investment committee chairman of GFIA, said in addition to the fees NEPC will pay his firm, GFIA also will benefit by learning about the “DNA of the American institutional landscape” from the U.S. consulting firm.

Mr. Douglas said the number of potential partners in Asia for U.S. consulting firms remains extremely limited, in line with the nascent state of the corporate pension fund market in the region. He added it took decades for the U.S. consulting industry to reach its current level of sophistication.

Some other U.S. consulting firms said they're building up their own presence in Asia, as well as forging alliances.

Julia Bonafede, president of Wilshire Associates Inc.'s consulting unit in Santa Monica, Calif., said her firm “is committed to ensuring that our manager research capabilities expand into Asia.” She pointed to her firm's private markets teams in Hong Kong, Melbourne and Singapore, as well as its work with A.T. Kearney Korea LLC in Seoul to deliver consulting services.

While executives at most investment consulting firms report having conversations with overseas consultants at some point over the past five to 10 years, a number say they decided not to pursue such partnerships.

While there's an argument to be made that sharing information with consultants overseas is a “way to expand your resources and your reach ... we haven't seen a need to do that,” said John Meier, a managing director with San Francisco-based investment consultant Strategic Investment Solutions Inc.

Rather than fretting about picking narrowly focused managers, “we've been more long-term proponents of broader-based assignments, accessing a broad skill set and allowing people closer to the markets than we are to make those asset allocation decisions,” he said.

Likewise, Robin Pellish, CEO of Norwalk, Conn.-based investment consultant Rocaton Investment Advisors, said “Given the research opportunities afforded by our travel, managers' travel and ease of telecommunications, we prefer to maintain control over the research process rather than forming linkages with other organizations.”