Just as consultants are moving into money management to boost revenue, traditional money managers with expanding alternative investment businesses are adding the notoriously low-profit business of investment consulting.
Larger institutional investors increasingly are hiring money managers as consultants in specialized assignments such as developing multistrategy, multiasset-class portfolios.
That opens a window of opportunity for traditional stock and bond managers to showcase their new alternative investments business units.
But there could be conflict-of-interest issues, even when managers aren't seeming to charge for the advice or aren't recommending proprietary investment strategies, industry executives say.
In the past 14 months, large traditional managers including Neuberger Berman Group LLC, Prudential Financial, New York Life Investment Management, and Deutsche Asset and Wealth Management have added consulting services. Each of the firms hired consultants to run the new units.
Driving the trend is a desire to deepen client relationships, which could lead to opportunities to not only provide money management but also property and casualty insurance or banking services. A consulting unit can also help to establish a traditional money manager's expertise in alternative investments.
Prudential formed its multiasset-class solutions business about a year ago to provide investment advice to clients, not to sell strategies, said Michael Schlachter, a managing director and head of multiasset-class solutions for Prudential Investment Management, Prudential Financial's money management arm.
Mr. Schlachter left Santa Monica, Calif.-based consulting firm Wilshire Associates Inc. to join Prudential 11 months ago. The group is set up to advise institutional investors on such issues as asset allocation, investment education, portfolio construction, dynamic derisking and hedging. Consulting could include suggesting investment strategies such as public fixed income, private debt or real estate. “Our solutions group is one of many ways our clients can tap into our knowledge and expertise,” Mr. Schlachter said. “We feel we are a valuable resource for our most important clients ... We're adding our voice to the room.”
Prudential was encouraged to offer consulting services by large institutional investors that “really want to rely on their most trusted investment partners for more than just a portfolio management relationship,” Mr. Schlachter said.