Summit Strategies deal to close in 2 months; clients on tight deadline
Updated with correction
With a potential closing date as early as Oct. 15 for the deals, plan executives contacted for this story said they have less than two months to issue RFPs for their investment consulting mandates because of Summit's departure from the public defined benefit plan business — a limited time frame to issue searches, conduct due diligence and make a selection.
"Yes, the sale does present a problem, since another (consultant) cannot be sought out and hired in such a short time frame," said Jeffrey Yates, retirement administrator at the $1.1 billion Baton Rouge (La.) and Parish of East Baton Rouge Employees' Retirement System.
Amy Baskerville, spokeswoman for the $2.7 billion Baltimore City Fire & Police Employees' Retirement System, agreed the short time period before Summit is no longer its investment consultant is a problem. She said plan officials would not elaborate.
Another plan executive, who asked not to be identified, said that the short timespan is difficult for many smaller-size pensions funds that make up the bulk of Summit's public defined benefit plan clientele because they rely heavily on their investment consultant to make decisions on allocation and manager selection. "It's a big decision for us," the plan executive said.
Orlando, Fla.-based AndCo Consulting would take on Summit's public DB consulting business, which comprised about 20% of its overall $160 billion in assets under advisement as of Dec. 31, while Mercer is acquiring Summit's defined contribution consulting and outsourced CIO business. AndCo had $77.3 billion in AUA as of June 30, 2017.
The Baltimore City Fire & Police plan is already conducting an invitation-only search for a replacement to Summit, and the $819 million St. Louis Employees' Retirement System has issued an investment consultant RFP, due Oct. 15. AndCo will be considered for both assignments and, in the case of St. Louis, said Rich Olliges, accounting officer, will serve as interim consultant until a permanent selection is made.
Also, the $600 million Knoxville (Tenn.) City Employees' Pension Fund announced it would issue a consultant RFP in mid-September, as will the $710 million St. Louis County Retirement Plan, Clayton, Mo.
The $8 billion Missouri State Employees' Retirement System, Jefferson City, will decide at a Sept. 13 board meeting whether to issue an RFP to replace Summit as its investment staff consultant.
But spokeswoman Candy Smith said the system's policy and best practices would presume an RFP would be issued.
At about the same time
Plan sponsors were notified of Summit's sale either the day the deals were announced or the night before, after the close of markets.
"We were notified coincident with the announcement," said Ms. Smith, MOSERS spokeswoman. "Since Mercer's parent company is publicly traded, there were laws that govern when announcements can be made." She said MOSERS is "making contingency plans" for Summit's departure, "and the fund will be able to execute without Summit as the consultant."
Baton Rouge's Mr. Yates said the plan "was not notified until after the close of the market Aug. 13. This was explained that ( Marsh & McLennan Cos. Inc., Mercer's parent) is publicly listed and the stock price could have been affected by an early announcement." The Baton Rouge pension board met Aug. 30 to discuss whether to issue an RFP; the results of the meeting could not be learned by press time.
"It seems likely that (Baton Rouge) will either be without consultant representation for a period of months, or will agree to work with AndCo in the interim until a permanent replacement is made," Mr. Yates said, adding that AndCo "is an unknown commodity to us at the current time."
"I totally get it," said Stephen Holmes, Summit Strategies founder, principal and president, of public fund clients' concern over the quick turnaround on finding a new consultant.
"I understand they're saying, 'I don't know this market. I haven't looked for a consultant in 20 years,'" he said. "I understand and I'm sorry. But we've tried to make things as smooth as we could by doing our due diligence and finding what we think is the best firm for them to move forward with."
Mr. Holmes will become senior strategic adviser at Mercer.
Summit Strategies "made a business decision to exit the full-retainer consulting business for public defined benefit plans," Mr. Holmes said, adding he understood that Mercer would not take on the public DB service from Summit since Mercer had closed its own U.S.-based public fund full-service investment consulting business in 2010. "Our clients prefer to deal with one firm to meet their needs. I understand that. I get why we can't offer that from a Mercer perspective, but there's also not a future for us in that business."
Moving to AndCo
In the deal, AndCo is acquiring the agreements between Summit and its public fund clients, pending those clients' consent, said Michael Welker, AndCo president and CEO. Summit "reached out to us as offering both an interim and a long-term consulting solution for their clients," Mr. Welker said. "We know the public fund space, we love the public fund space, we built our public fund space. We hope Summit's clients will see our capabilities and choose us. But if in doing their fiduciary duty to select their future consultant, it doesn't happen to be us, that's fine, too."
AndCo's existing public defined benefit clients include the $16.9 billion Oklahoma Teachers' Retirement System and the $2.7 billion Oklahoma Firefighters Pension & Retirement System, both of Oklahoma City; the $378 million New Orleans City Employees' Retirement System and the $370 million West Palm Beach (Fla.) Police Pension Fund.
Mr. Holmes said the decision to sell the public DB business to AndCo was made after considering its offer and those of three other investment consultants. "We preferred AndCo because of geographic overlap," Mr. Holmes said, with AndCo's regional business in the South, Southeast and Mid-Atlantic U.S., similar to Summit's.
"I know my clients, and I know the industry," Mr. Holmes said. "And they're looking for someone who looks a lot like us."
Summit DB specialist Trevor Jackson will be the lone Summit official to move to AndCo, Mr. Holmes said.
Added AndCo's Mr. Welker: "We're proud of the people we have (at AndCo), yet with adding Trevor, we've added continuity with how Summit clients have had their portfolios built. He was the only full-time DB person at Summit."
While the short two-month time frame bothers officials at some plans, all contacted for the story praised Summit as an investment consultant over the course of their relationships.
"We have always maintained an excellent relationship with Summit, and that goes back to 1997," said Baton Rouge's Mr. Yates. "We hope the replacement firm can deliver the same level of service and professionalism as Summit consistently did."