(March 28, 2012) — Rocaton Investment Advisors has joined the outsourced CIO — also known as “discretionary consulting” — bandwagon.
The firm announced that it would begin offering the service, as it has OK’ed its first discretionary consulting client. The new service will allow Rocaton to oversee total portfolios for their clients.
“Rocaton is anything but an impulsive organization,” Robin Pellish, the investment consulting firm’s CEO, told aiCIO. “We’ve grown slowly and methodically, and we felt that getting into the outsourced business makes sense for us.”
According to Pellish, the firm’s decision to pursue the outsourced CIO business stems largely from its hiring of John Nawrocki — who joined in 2011 from Rogerscasey where he led the outsourcing arm. Nawrocki will oversee Rocaton’s discretionary consulting business.
Rocaton was spurred to offer discretionary services, first reported by Pensions & Investments, when one of its clients, a non-public defined benefit plan, requested discretionary consulting on an implemented basis. “We already had resources in place with John and had been thinking about offering discretionary consulting for several years — we observed the trend of more and more consulting firms offering this service.”
The trend toward discretionary consulting is obvious.
In June, NEPC revealed that amid growing client demand, the consulting firm was making its way into the field of discretionary consulting. “We’ve been forced to look into this business for many years now,” NEPC’s Steve Charlton told aiCIO when asked about what spurred the decision to move into the space. “A lot of our clients are choosing to go the outsourcing route. For many years we felt it wasn’t that big of a deal,” he said. “But that started to change last year when we received more requests for proposals (RFPs) asking for discretionary services.”
During that same month, the $40 billion Alaska Permanent Fund CIO Jeffrey Scott announced that he would leave the sovereign wealth fund and join Wurts & Associates, heading the firm’s discretionary asset management division.
When asked about the reasons for the transition into outsourced services, Rocaton’s Pellish attributed it to better margins and the need to adapt. “While requests for outsourced CIO services started with smaller funds years ago within the defined benefit pension space and endowments in particular, those requests are now not confined to a particular sector. Funds want to outsource to a consultant whose sole competency is doing that,” Pellish said.
In terms of the explanation behind the resistance among some consultants to offer the service, Pellish cited infrastructure. “Discretionary consulting requires a certain amount of administrative capabilities that have to be in-house, which is different for non discretionary consulting. We were fortunate to have these resources in house.”
Few consulting firms are left that have not spread into the outsourced CIO space. Albourne Partners — the world’s largest dedicated alternative investment consulting firm, is one of them. The firm is adamant about offering a fixed fee model, while refusing to take discretion for the advice they offer on investing in a hedge fund manager. In other words, the firm feels strongly that there is a Chinese wall between discretionary and non-discretionary advice on managers.
Rocaton and increasingly other firms, in contrast, echo a similar sentiment about the need, perhaps the pressure, to get into the outsourced CIO business amid the generally low-margin consulting environment. “We need to be competitive. This is a comfortable extension of our capabilities,” Pellish explains.