Consultants move to investment side

The rise in investor demand for multiasset-class solutions and outsourced CIOs is contributing to a spike in executives from investment consulting firms joining money managers.

Among the moves: Erik Knutzen, NEPC Inc.'s former chief investment officer, joined Neuberger Berman Group LLC in May, and Wilshire Associates Inc.'s senior consultant Michael Schlachter went to Prudential Investment Management in July. These and other personnel changes are the result of more money managers turning to senior consultants to oversee new divisions created to meet institutional demand.

“Senior-level people leaving consulting firms to run a business at a money manager is a new thing we're seeing,” said Keith S. Macomber, a partner and member of the financial services practice of executive recruiter CTPartners LLC, New York. “It's because of this new drive for OCIO and multiasset-class platforms.”

Pensions & Investments data show 32 consultants joined money managers in the first three quarters of 2014, nearly twice the number during all of 2013. And already, there are more moves to senior positions like CIO or head of multiasset this year than last.

In addition to Messrs. Knutzen and Schlachter, other recent examples include Kelly Cliff, formerly CIO of public markets at Callan Associates Inc., joining Victory Capital Management as president of investment franchises in September; and John W. Geissinger, formerly a partner at Hewitt EnnisKnupp, joining Christian Brothers Investment Services Inc. as CIO in April.

There's nothing new about money managers recruiting consultants, but often they are hired to be consultant relations managers or sales people. Former RVK Inc. senior investment consultant Michael L. Ford joining Amundi Smith Breeden in September as U.S. head of consultant relations, for example, is a common move within the industry.

“You've always had people move from consulting shops to investment management firms,” said Yariv Itah, a managing partner at money manager consulting firm Casey, Quirk & Associates LLC, Darien, Conn. “But there are new elements.”

One is “the growing demand for asset allocation products,” Mr. Itah said.

Money management firms haven't been able to keep up with the demand from clients for multiasset strategies and often don't have that talent in-house, he said. As a result, many are looking to build their teams from the outside, and often are turning to consulting firms for that talent.

“When you're growing a (multiasset class) team, where do you find the talent? You either look to a competitor, a plan sponsor, or go to a consultant,” explained Marylin L. Prince, a founding partner of executive recruiter Prince Houston Group, New York. “Our clients are looking for people who have been involved in asset allocation decisions, who have experience across a broad spectrum of investment options.”

J.J. Wilczewski, head of the institutional client group, Americas, at Deutsche Asset & Wealth Management, Chicago, agreed. “The asset managers and consultants both see continued demand for outcome-oriented solutions. Therefore, as the market need evolves, you must find talent that understands and has experience solving these challenges, which consultants do.”

Before joining DeAWM in July, Mr. Wilczewski was a partner and head of institutional advisory solutions at investment consulting firm Hewitt EnnisKnupp Inc.

“We've seen consultants as a source of candidates for outsourced CIO, and endowments and foundations opportunities,” said James Houston, also a founding partner of Prince Houston. “What's evolving more recently is (consultants) being a source of talent for multiasset-class solutions. We are seeing an increase in demand.”

Andrew Junkin, a Denver-based managing director at Wilshire Associates Inc., said the recent rise in money managers hiring consultants “reflects the work of OCIO. Consultants have the background to work on complicated portfolios. Prior to the outsourced CIO buildup, you saw consultants making the switch to CIO and joining endowments, which was seen as a move out of the industry.”

Historically, consultants have faced a big challenge when switching to money management and its radically different working culture. While consulting firms traditionally have been seen as a more academic, research-related environment, asset management firms are known for being a more fast-paced, competitive arena.

However, with a number of investment consultants creating third-party asset management businesses, this cultural difference is starting to erode.

“Over the last five years, a lot of investment consultants have developed their own third-party businesses. So that's meant those in a more academic setting have moved into a faster-paced, more competitive market,” said Chad Astmann, a partner and head of the North American asset management practice at executive recruiting firm Heidrick & Struggles, New York. “You've got this pool of talent that's been trained in a more traditional consultant model but has become more practiced at going out and pitching and being competitive.”

DeAWM's Mr. Wilczewski added: “Consultancies are grooming their talent to operate as proactive, discretionary investment managers, so that talent development draws them closer to the money management world while still maintaining a fiduciary mindset.”

There's another reason more consultants are joining money managers: Asset management firms can offer significantly higher salaries.

“You make a lot more at a money management firm than at a consulting firm,” explained one consultant who spoke on the condition of anonymity.

Sources qualified, however, that consulting firms offering OCIO tend to be a little better in offering competitive compensation than ones that don't, although they're still not as strong as pure asset managers.

Although there's historically been a back and forth in trading talent between money managers and consulting firms, Mr. Astmann said his firm hasn't seen too many money managers moving to key roles at consulting firms recently, because of the dramatic imbalance in compensation.

“The consulting model is contracting, and as a result, you're seeing another push from this talent pool to move over to the third-party business, which is expanding,” said Mr. Astmann. n