The investment horizon for super funds has expanded far beyond the traditional asset classes of stocks and bonds. The proliferation of complex alternatives such as hedge funds and private equity is driving a trend towards specialisation in the investment consulting industry as consultants look to allocate research resources more effectively. KRISTEN PAECH reports.
Consultants are under pressure to revamp their advice offerings as profit margins are squeezed and all facets of the industry reassess the adequacy of their value proposition in the new market environment. It is not uncommon for super funds to seek guidance from more than one source, with the $3.7 billion Vision Super using Frontier Investment Consulting as its general consultant, Sovereign Investment Research as independent consultant for private equity and J G Service as adviser for property.
The $28 billion AustralianSuper retained both JANA and Frontier as its asset consultants following the 2006 merger between Australian Retirement Fund and Superannuation Trust of Australia. As funds and their in-house investment teams grow in scale, they are increasingly looking for specialist knowledge from their consultants, who are attempting to research a deeper, broader universe of opportunities. Acknowledging the difficulties that a traditional consultant faces in doing this, Mercer Investment Consulting recently transformed its manager research team into four separate boutiques covering equities, fixed interest, real estate and alternatives.
The aim is for each boutique to act as an expert in its own area, with the alternatives boutique split into ‘alpha’ and ‘beta’. “What we’ve found in recent years is that the range of products that we research for our clients has expanded enormously,” says Andrew Kirton, global head of investment consulting at Mercer. “It’s no longer possible for consultants who work with clients to be an expert across all of the product range; it’s too broad and too deep. In quite a number of the new alternative asset classes that we research, you need a level of expertise; you need to have experts closely connected with clients.
As the world gets more complex, to do the job for clients we have to become more specialist and grow that expertise, and when you grow that expertise it calls for a different type of organisation.” Kirton says increased competition from niche consultants, who are vying for a “sliver” of the consulting pie, was another major driver behind the new structure. “There are a number of organisations that take a very thin slice of the universe,” he says. “They just focus on private equity products or real estate products and build depth in that area.