OCIO evolution means new challenges for managers

The change in the kind of services consultants are providing their asset owner clients has changed the dynamic for money managers, who now are looking to get put on investment outsourcing platforms as well as being recommended by consultants for specific strategies to asset owners.

That's led to a change in how managers reach out to consultants, with less sales and marketing to asset owners and more efforts in consultant relations to get on their researchers' radar screens.

“In general, it's harder to have interaction with researchers,” said Gerry Cosgrove, managing director and head of consultant relations, RBC Global Asset Management (U.S.), Boston. “There's been compression on consulting fees, and consultants are doing a lot more screening of managers. There used to be a more open-door policy among consultants, but now there's more "don't call us, we'll call you.'”

What has made contact with researchers more important is that, through outsourced chief investment officer programs, those researchers' recommendations are carrying more weight at consultant firms, said Andrew McCollum, managing director, Greenwich Associates, Stamford, Conn. Reaching consultants' researchers “is an asset manager problem,” Mr McCollum said. “Research teams are increasingly influential in creating client portfolios. There's a greater emphasis on their recommendations than ever before. So it's even more important for money managers to reach their consulting teams. If it's harder for managers to reach them, that is a problem if managers are trying to get the word out about what they offer.”

Jeffrey MacLean, CEO, Wurts & Associates, based in El Segundo, Calif., agreed. “What is true is that money management firms are increasingly challenged to gain access to clients as never before,” Mr. MacLean said. “Back in the day, managers hired sales and marketing pros to influence the (asset owner) buying decision at the board level; board tells consultant about the firm, consultant does the research, everyone's happy. But more and more, those same marketing pros call a trustee, the trustee tells them to talk to the consultant themselves. So you have all these money management firms calling all their consultants. We have to rationalize exactly how much due diligence that we can actually do on all these managers.”

“More consultant relations people mean consultants are overwhelmed with people calling on them,” Mr. Cosgrove said. “Some of the bigger (consultants) know this and get all their managers together in advance and say, "Here's what we're going to do, what do you have for us?' But if you're not in that group, the conundrum is how can you distinguish yourself with consultants if you can't get a foot in the door?”

Managers like RBC Global have responded by hiring more people in consultant relations and less in sales positions, and the firm also has updated data on its services through venues like eVestment LLC, Mr. Cosgrove said.

“Part of it is because it's just become more evident as to how important consultants are,” Mr. Cosgrove said. “It's really true in OCIO; if the consultant is the decision-maker, don't you want to put your resources there? You really need a lot of people in consultant relations to stay on top of this.”

Mr. MacLean said the increase in managers' consultant relations ranks is “absolutely true. There's a changing distribution network for money managers in the institutional business. That shift is good for consultants, but not so good for money managers.”

"Many more firms'

Paul Berriman, CEO at Towers Watson Investment Management, London, said he knows how important it is to get the firm's products and funds on a consultant's radar, having been a fixed-income portfolio manager at Deutsche Bank AG before joining Towers Watson in 2012. “One of the frustrations with being a manager is that even if you're dealing with a larger consultant, there are many more firms than the consultant has time for to get their name across. You'll never get to the stage where all people on the buy side will be happy, no matter where the researcher sits.”

That points to an assessment by Mr. Cosgrove that more researchers at consulting firms are working remotely rather than in a central office — which, he said, added to the difficulty in getting a manager's name across. However, he does say there are some benefits to managers who are aware of those researchers. “It can help us, too,” he said. “Sometimes if you know where they are, it's easier to get them remotely. Some of the other managers don't know where they are.”

Mr. MacLean, however, said he hasn't seen a trend of researchers working away from the office, as that doesn't lend itself to the collaborative effort needed among a research team to provide the best recommendation possible. “There is an example or two out there” of researchers working remotely, “but to raise it to a trend, I just don't see it. Most reach out via e-mail anyway, which you can pick up wherever.” n