Asset managers have long
courted the world’s largest asset allocators in hopes of landing lucrative mandates. But increasingly, managers are working to woo allocators’ gatekeepers, as well.
Investments firms have doubled down on consultant relations in recent years, ramping up both the
quantity and quality of employees responsible for interacting with sector. The importance
placed on consultant relationships by asset managers has nearly doubled in the
last five years, according to research by Cerulli Associates. In 2011, 42% of managers surveyed rated the function as
“very important.” Since then, the percentage has grown to 79%.
“What was once a nice-to-have
is now a must-have,” said Chris Mason, a research analyst at Cerulli.
In the past, Mason explained,
consultant relations teams might have consisted of one or two people setting up
meetings between advisers and portfolio managers. Now, these units have
evolved into a robust, multi-person departments armed with CFAs and investment expertise, their sole purpose to make nice with consultants.
“These are dedicated people who
spend the entire day calling on and trying to set up meetings with these
consultants,” Mason said. “Asset managers are relying on their consultant-relations professionals to be able to speak to the particular nuances of their
strategies and have more of an investment background.”
Managers have invested so much
in these teams, Mason continued, that many consultants feel overwhelmed
by the sheer number of incoming meeting requests from asset managers.
So what’s prompted this sudden
consultant relations arms race?
Consultants themselves are not
new. Use of an independent investment adviser—particularly for public pension funds—has
been an industry norm for several years. Consultants intermediate the vast majority (86%) of US-based institutional investor-provider relationships, and have done so for years, according to Greenwich Associates.
“One of the reasons we haven’t
seen a meaningful drop-off in consultant usage is every year there are new
and different challenges,” said Sara Sikes, vice president of Greenwich
Associates’ investment management practice. “As a result, institutional
investors still rely heavily on experts with deep knowledge of the issues to
provide advice and guidance.”
In particular, Sikes said asset
owners rely on the “breadth and depth” of knowledge consultants bring to
manager selection. Most allocators don’t have the internal
resources necessary to evaluate every potential asset manager, she argued.
“In many cases, they don’t feel
well armed to make the decisions on their own,” Sikes said. “They feel more
comfortable having a consultant advising on the decision.”
The relationship makes sense:
Consultants have the capacity to research a wide range of managers, as well as
insight into what strategies might work best for a particular fund based on
their experience advising other asset owners. The trade-off is that consultants
end up with a significant amount of influence—so much that any manager pursuing
an institutional mandate likely has to go through a consultant first.
Cerulli data show that 58% of
net flows to asset managers were consultant-intermediated in 2015. Yet
according to Greenwich Associates, consultants endorse a tiny number of firms. Roughly 3% of US equity managers and 8% of fixed income managers make the buy-lists.
To have a chance at institutional money, managers need to get on those elite lists. And to get on
those lists, they have to “put their best foot forward,” Mason said.
“In order to target these
consultants and get in front of them and educate them on their strategies, they
need to have a dedicated team on staff,” he said.
Yet the more managers bulk up
their consultant-relations teams, the more skewed the ratio of advisers to lobbyists becomes. And the more relationship professionals per individual consultant, the more people there
are competing for an individual’s time.
“As institutional asset
managers continue to build out these consultant relations teams, the effect is
that it’s been extremely difficult for managers to get in front of consultants
and target them,” Mason said.
And so the arms race continues.
Over the next three years, 89% of surveyed managers said consultant relations
will be “very important,” according to Cerulli.
“If you want to play in the
institutional space, consultant relationships are a must-have,” Mason said.
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