A move by an increasing number of infrastructure investors into direct and co-investments is putting more pressure on investment consultants, already squeezed by money manager competition and investor efforts to lower fees.
With the move to direct investment, co-investments and separately managed accounts, investors no longer need as much help choosing among various infrastructure fund managers. Instead, investors need assistance evaluating potential infrastructure investments, a job typically in the hands of a money manager.
Consultants, already in a business with low profit margins, are getting heat from investors to lower fees while providing more services. At the same time, funds of funds and other money managers are crossing into consultants' turf, offering consulting services as part of strategic partnerships or under the broad “solutions” category.
“As investors become more sophisticated in their understanding of, and approach to, the asset class (including increased adoption of co-invest and direct investment strategies in some cases), "traditional' generalist consultants will find themselves under increasing pressure,” said Toby Buscombe, principal and global head of infrastructure in the London office of Mercer LLC.
Some consultants, including Mercer, are fighting back by hiring executives from infrastructure managers who can help investors evaluate and select infrastructure projects.
Mercer, Mr. Buscombe noted, has responded to the latest challenge “with the ramp-up in its own specialized infrastructure consulting unit.”
Mr. Buscombe, who joined Mercer from alternatives manager Access Capital Advisers in December 2011, this month was appointed global head of infrastructure investments. Mercer now has five specialists dedicated to the asset class, with plans to increase that in the coming year, Mr. Buscombe said. Three years ago Mercer effectively had one specialist dedicated to infrastructure.
“This has reflected a targeted strategy of bringing investment professionals with deep backgrounds in direct infrastructure investing (across both equity and debt) into the team to step up our offering,” he said.
Mercer is doing so to keep up with expanding infrastructure investment market.
“Compared to a decade ago, it's a more sophisticated market, certainly a more competitive market facing investors,” Mr. Buscombe said.