Once adversaries, managers and consultants now collaborators

If you can't beat 'em, join 'em.

That's the view of multiasset money managers and investment consultants that are learning to work more collaboratively instead of in competition with each other.

"As asset managers develop greater capabilities around strategic and tactical allocation, liability hedging, tax and derivative overlay, consultants and asset managers are partnering more together today on solving a client's investment objectives," said Margo Cook, president, Nuveen Advisory Services, Chicago, which manages $50 billion in multiasset strategies. "While many asset manager and consultant relationships are still run in a traditional sense, this shift toward partnership is becoming more common, especially for large asset managers that can bring multiple capabilities to the table."

Jeb Doggett, managing director at Casey Quirk, a practice of Deloitte Consulting LLP, Darien, Conn., agreed. "As the ​ market has evolved, managers have adopted a more consultative approach to marketing with plans, and multiasset has driven that change to meet the challenges of plans and bring the resources of the total firm to that relationship," said Mr. Doggett. "But plan sponsors don't have room for a consultative relationship with every manager. I think consultants still are very important advisers to institutional clients. There's an evolution going on."

The evolution, which has been gaining speed as the use of strategic partnerships has grown over the years, is in how consultants and managers interact. While the traditional model — in which consultants assess and recommend money managers to their asset owner clients on specific asset classes — remains, consultants and managers have learned to expand their relationship because of asset owners' demands for broader multiasset strategies. (Institutional assets under management tracked in eVestment LLC's global balanced/tactical asset allocation universe hit $813 billion as of Dec. 31, a 20% increase from two years earlier.)

Those strategies that require managers to consult with end clients on their overall asset allocation could be viewed as treading on consultants' turf — particularly those that offer outsourced chief investment officer services, where consultants compete directly with managers for asset owner business. But sources said both managers and consultants have adjusted their relationships with each other.

"There is more collaboration," said Mark Brubaker, managing director and head of OCIO solutions at Wilshire Consulting, Pittsburgh. "There are cases when we're competing head-to-head with these managers, that's one end of the spectrum. The other end is we're recommending them as money managers for our clients, and there's a whole lot of gray area in between. The fact that we do have these relationships (with other managers) shows we've been managing these aspects pretty well."

Jay Love, partner, U.S. director of strategic research, Mercer LLC, Atlanta, said most of the relationships Mercer has with multiasset money managers "are pretty good. Managers can have a broad mandate. They want to show why they add value.

"Where there's a single product, Mercer will make recommendations," he said. "That's a classic process. Multiasset is definitely a different process. It's more customized, and those are much more collaborative with us. We are interested in talking to the manager and whether they can add something beyond 'we have five great strategies.'"

Added Nicolaas Marais, president, Wells Fargo Asset Management, San Francisco: "Many of us (at Wells Fargo Asset Management) come from the consultant side. Consultants now work with us. We seldom see managers working against consultants. The traditional consultant-manager model still holds, but we also now have a solutions model" for consultant relations. Wells Fargo Asset Management oversees $28 billion in multiasset strategies.

Treating multiasset as more of an overall investment policy and less as a tactical allocation has led money managers to tap the knowledge of consultants on issues such as asset allocation and investment policy, said Eugene Podkaminer, senior vice president and head of research strategies, multiasset solutions, at Franklin Templeton Investments, San Mateo, Calif. Mr. Podkaminer helped run the OCIO platform at San Francisco-based asset manager Barclays Global Investors from 2007 through 2009.

"There are certain aspects of OCIO and multiasset that are in common, and chief among them is treating the offering less as a product and more as a service that comes with a credible relationship and rapport," Mr. Podkaminer said. "And that is something that asset management firms historically have been working toward, but consultants, because of their business model, have always embraced. As a consultant, you have long-term relationships with clients and you help them with anything they need help with. For asset managers, you've seen this tectonic shift from product offerings to really treating the client in a much more holistic manner and listening to them, understanding where their pain points are, much like a consultant would. And helping define solutions that fit their needs instead of coming up with a box of products."

Franklin manages $137.6 billion in multiasset strategies, including $99.7 billion in its multiasset solutions business.

Mark Andersen, San Francisco-based senior vice president, manager, trust advisory group, at Callan, said the increase in multiasset solutions from money managers has changed how Callan assesses managers in the asset class.

"Callan has professionals from across the organization — classic manager research, but we also ask our capital markets team to engage in the review and approval of managers," said Mr. Andersen. "Those are our asset allocation specialists. That's definitely new to us in that regard. It's joining our manager research and asset allocation departments, because in multiasset, you can't unbundle. You almost have to click the underlying boxes in those strategies for their substrategies, and assemble them in an appropriate way. That's not an advantage but a requirement in multiasset. … It's been an evolution. To say we're at the end of that evolutionary world would be naïve. In five years, a lot of multiasset searches have really blossomed. We expect that to continue with even more portfolio customization."

While managers and consultants might be working more in tandem on multiasset solutions, it doesn't change the overall historic "adversarial" relationship between them, said Michael Falk, partner, Focus Consulting Group LLC, Long Grove, Ill. "The question with multiasset is how adversarial."

Mr. Falk suggested "a tale of the tape for conflicts and skill," much like what's used in boxing to compare fighters. "There should be an assessment ... of how consultants and multiasset managers are cooperating or competing," Mr. Falk said.

And despite the talk of cooperation, there are examples where there has been conflict.

"Some (managers) collaborated with us, where we set a strategic allocation policy and the manager worked with that," said Mercer's Mr. Love. "But in other cases, it was 'stay out of the way' of the manager. That didn't work out too well. The manager worked while we had to look over their shoulder. But those cases were early on; they haven't been too common lately. I think everyone has settled into the landscape."

Mr. Brubaker at Wilshire also said he's seen conflicts arise, but it's no surprise. "Some managers are trying to grab a piece of the OCIO pie. Growth in OCIO has doubled in the past six years. It's one of the few places where there's growth in the (institutional money management) industry."