A deal in Australia, one in the U.S., and now in the U.K.: Mercer’s planned acquisition of Cardano is the latest example of the consulting giant’s efforts to expand and add to its global outsourced CIO and defined contribution capabilities, bringing a well-respected player on board in the process.
Mercer’s parent company Marsh McLennan on June 11 inked a deal to acquire U.K. and Dutch retirement specialist Cardano, a privately owned firm that’s been in operation for 24 years. Subject to regulatory approvals, the deal will close at the end of the year, and about 550 Cardano staff will join Mercer. Terms of the deal were not disclosed.
“It’s tick, tick, tick in what we were looking for and where we think Cardano (is) really strong,” said Phil Parkinson, head of retirement and investments at Mercer U.K., in an exclusive interview. “It expands our capability for clients and responds to … the demand that we’ve been seeing.”
Cardano ticks boxes in terms of “doubling down on our … pensions heritage and making sure we are investing in that in terms of capability, good talent and certainly from our OCIO or solutions business,” Parkinson said.
While Mercer has been successful in its OCIO and solutions business — it’s the largest OCIO firm according to Pensions & Investments data, with $419.6 billion in OCIO assets as of Dec. 31 — “we’ve been getting demand for more implementation capability” from certain clients, he said. “So we’ve had this strategy of saying, well, we would really like to expand our toolkit to include some implementation capability in response to that client demand. … That was a key strategic pillar.”
Last year, Mercer agreed to acquire Vanguard Group’s $60 billion OCIO business, Vanguard Institutional Advisory Services.
Another focus is a commitment to and growth in Mercer’s defined contribution business. The consultant already runs the Mercer DC Master Trust, which has “been very successful in its particular channel in terms of that probably larger, more complicated, complex client” segment, Parkinson said. The firm operates master trusts in North America, Ireland, the Middle East and in the huge superannuation market in Australia — where it transferred BT Super into its own Mercer Super Trust last year. The BT Super transfer — which created an about A$63 billion ($41.5 billion) super fund with BT accounting for just over half of that — was part of a deal for Mercer to merge Westpac Banking Corp.'s BT personal and corporate superannuation business into its own.
“We were looking to try and invest in those strategic aims, and Cardano is a fantastic match in that area,” Parkinson said.
Cardano's three business units
These strategic focuses align with what Cardano brings to the table, which covers three business units: an investment solutions business that straddles the U.K. and the Netherlands, with $66 billion in AUM; an advisory unit that covers corporate finance, litigation support, risk transfer and employer covenants; and NOW: Pensions, a U.K. master trust with about £4.6 billion ($5.8 billion) in assets.
"Each of those, we think, brings fantastic talent and capability, and extends what Mercer is able to deliver,” Parkinson said, with the solutions unit bringing implementation, and an enhanced environmental, social and governance advisory capability, for example.
“We expect this to be a transaction — if and when we pass our regulatory hurdles — to be about growth, delivering more choice and delivering more value to clients,” Parkinson said.
For Cardano, becoming part of a consulting behemoth like Mercer has its own attractive rationale, said Kerrin Rosenberg, U.K. CEO, in a separate interview. And having been approached by many suitors over the years, senior leaders were razor-focused on any deal ticking its own boxes.
The firm had been approached multiple times over the last couple of decades, and those conversations "just didn't go anywhere because we weren't ready," Rosenberg said. But in recent years, the management board had been thinking about the future — how Cardano had reached a point where "we are increasingly, I think, competing with very large competitors in all of our business areas and wherever we are."
It led senior leaders to think through how best to position the business for future growth, and toward the end of last year, the team embarked on an official process, engaging external help. "We had to think very carefully about how do we get to a solution that is growth-oriented, that is good for our clients, good for (our) people and works for shareholders, too. So we had to tick all the boxes. The management board has spent a lot of time being thoughtful about that," Rosenberg said.
Each of the three parts of Cardano — advisory, investments and NOW — has been successful in its own right, but senior leaders were thinking carefully about how to keep offering opportunities to staff and remaining competitive.
“I think as Cardano, we’ve done a very good job of doing what we do and growing that over time — but just the markets that we operate in have become more competitive,” Rosenberg said. While continuing as a relatively niche specialist “has got some attractions … being part of a top, world-class multinational company that (is) broadly diversified … is another” thing entirely.
For the NOW: Pensions unit, which is narrowly focused on automatic enrollment, Rosenberg said the next logical step was to broaden the offering and think about other single-employer trusts the team might be able to work with. Sitting alongside Mercer’s master trust and DC offering can help with that next step.
Being part of a bigger organization will also be attractive for staff, potentially enhancing retention as bigger opportunities for “talented colleagues” open up. “Whichever way you look at this, whether it’s the advisory piece, whether it’s the … investment piece; being part of a larger family, a broader organization that has that brand, that has a broader client base … (brings) incredible opportunities that would be very, very hard for us to create for ourselves,” Rosenberg added.
The deal is “almost like unlocking the next level in a computer game. So you’ve achieved a certain level, they (Mercer) unlock a whole bunch of new levels. And I think that’s exactly how we’re thinking about it,” Rosenberg said.
Targeting growth in OCIO business in particular is part of a wider trend in the money management industry. “OCIO remains an attractive business line for various types of players: asset managers aiming to become a ‘one-stop-shop’ and create stronger relationships with their clients, and investment consultants looking to diversify from their traditional model toward fee-based assets under management,” said Richard Bruyere, managing partner and co-founder at money management strategy consultant Indefi.
Those firms where there are “strategic synergies” between OCIO and their current business are the most likely to pursue inorganic growth in the service, “as the ability to cross-sell other products and services will help compensate for OCIO’s relatively low margins. From a global perspective, we anticipate sustained M&A activity in this sector,” he said.
Regarding Mercer and Cardano, there are specific elements to consider, Bruyere said. The first is that OCIO in the U.K. is facing “the significant headwind of a declined DB pension pool that is increasingly” choosing insurance deals to transfer risk, and to defined contribution arrangements — most notably master trusts. On that front, Mercer and Cardano’s positions in the U.K. DC master trust market “is a clear additional benefit of the combination,” Bruyere added.
Little overlap
Although Mercer and Cardano run investment management, advisory and DC units, they are different, and “we operate in very different channels at the moment — there’s almost zero overlap,” Parkinson said. “We’re committed to meeting clients at where they’re at, and helping them on their journey across the spectrum. And in my mind, what the combination does is effectively just broaden that spectrum out,” Parkinson said.
Specific implementation or liability-driven investment needs of a client can now be better covered through the combination, while Cardano’s existing clients will benefit from the larger manager research function at Mercer and alternative investment advice.
For now, the focus for Parkinson and Rosenberg and their teams is to serve clients, providing continuity.
As for the talent Cardano is known for, the deal presents an opportunity for executives to enhance their careers in ways they may not have been able to, Rosenberg said. Many high-profile executives have worked at Cardano over the years — Rosenberg himself is particularly well-known in the industry, and has also given evidence to the U.K. government’s Work and Pensions Committee as part of its investigation into the 2022 liability-driven investment-related liquidity crunch and gilts market crisis, sparked by a so-called mini budget.
“I’m happy to be on-record for this: I personally … expect this to be the third of three jobs for me,” Rosenberg said. Before Cardano he spent 15 years at Hewitt Associates, now part of Aon. He’s spent 17 years running Cardano in the U.K., and hopes “to spend the next 15-plus years at Mercer. We’re all committed, and … not just to see the integration through, but really to be part of a family and continue to thrive,” Rosenberg said.
