UniSuper has gained independence from consultants as a side product of taking half its AU$50bn assets in-house over the past five years. Managing assets internally has made its team more acutely aware of the complementary skill sets and return sources it needs from external managers. Furthermore, its investment team is led by a former fund manager, while the chair of its board and the chair of its investment committee are both senior fund management figures.
Kevin O’Sullivan, chief executive at UniSuper, reasons that if a fund has the right board and the right executives, then there is no need for the cost of a consultant. “We do not have an asset consultant on retainer but, from time to time, we may seek advice,” he adds. “Whoever they are, [a consultant] needs to be complementary to what the funds do themselves and do something that we cannot do.”
Where larger funds retain an investment consultant, they are becoming less likely to use them for general asset allocation advice or hire and fire decisions on managers.
The AU$50bn (£25bn) First State Super fund, a fund that mainly serves public sector workers in New South Wales, is typical of this trend.
Its chief investment officer, Richard Brandweiner, says: “I expect consultants will find greater opportunities to specialise in certain areas (perhaps even things like governance). Ultimately they will become extensions of the internal teams.”
Part of the experience of funds with large internal teams, according to Brandweiner, is the knowledge that frequently the right thing to do in asset allocation is nothing. An external provider is more likely to recommend a course of action to justify its fee and relationship.
Symptomatic of the power shift Brandweiner talks of, has been the ability of large funds to tempt senior staff away from investment consultants. In the past year, the heads of investment consulting from two of the four big firms (Jana and Willis Towers Watson) in Australia have been poached to work as chief investment officers. Ian Patrick, the former head of Jana, when interviewed in May about why he chose to become CIO of the AU$30bn Sunsuper fund, said he wanted to be closer to the decision making – the sort of decision making that senior consultants, of course, used to have more of.
CONSULTANTS RESPOND
Both Mercer and Willis Towers Watson have responded to these threats by recruiting more specialists in niche areas. The latter has also taken to describing itself [in Australia] as an extension of its larger clients’ investment teams, echoing Brandweiner’s thoughts above.
Simon Eagleton, leader of Mercer Investments, Pacific, says his firm has been adapting over the past decade.
“We have responded by developing very specific subject area capabilities staffed by domain experts rather than by generalist consultants.”
