Investment consulting firms squeezed by tough markets

Investment consultants admit that it's hard to make money in Asia. How are Cambridge Associates, Mercer and Willis Towers Watson responding to the challenge?
Investment consulting firms squeezed by tough markets

Some of the biggest investment consultancies are taking action in Asia in response to a tough business climate, such as pulling back from advisory business, focusing more on core markets and responding to fewer requests for proposals (RFPs).

This comes as senior investment consultants have made surprisingly frank comments to AsianInvestor about how hard it is to turn a decent profit by servicing institutional clients in the region.

“We’re making money in Asia, but we’re not making as much as we would like,” said Garry Hawker, Singapore-based director of strategic research for growth markets at Mercer, which has seen several senior departures this year.

Alvin Tay, Singapore-based head of Asia at Cambridge Associates, said it was common to be approached by Asian investors to do work on an ad hoc project basis. “Frankly we did that with the hope that ultimately we would be able to convert the relationship into something more engaged. It has happened, but it has been rare.”

Garry Hawker

Indeed, institutional investors themselves agreed that traditional advisory work is not profitable for consultants in Asia.

The treasurer of an Asian corporate pension fund told AsianInvestor: “Often the client is a sovereign wealth fund or government pension plan: the fees they can charge on that type of advice are okay, but [the work] requires large teams to service it. The level of return for the effort just isn’t there.

“That is why you hear them withdrawing from [covering those types of clients] he noted, on condition of anonymity. “I suspect more boutique consultants will fill that [advisory] space, or the funds will have to hire an in-house team.”

Shunning project-based work?

The Asia investment head of a US pension fund, who asked not to be named, said: “The main firms have been fighting hard to get away from the low-fee, one-off project-based work and moving more towards services where fees are based on assets under management.”

Asset owners told AsianInvestor that, in order to survive, consultants would have to reshape their businesses around work where fees are based on assets under management – notably discretionary investment management and providing funds of funds. Yet some expressed doubts that consultants could compete in this space.

Tay said Cambridge Associates was only prepared to do work on an ad hoc project basis if the firm felt there was a good chance it could lead to discretionary investment management work.

  Alvin Tay

"At the end of day it is about assessing the probability of [the work leading to] staff extensions or outsourcing the investment office,” he said. “There is no magic formula, but ultimately it is about us getting to know the prospect well and understanding their ultimate intentions, rather than responding to RFPs where we don’t have relationships.”

Willis Towers Watson, for its part, has decided to focus on core markets such as Australia, Japan and Greater China, rather than expending resources on less profitable business. Hence the departure in April of Peter Ryan-Kane, WTW’s former Asia-Pacific head of portfolio advisory, who has since set up his own firm, PeRK Advisory.

He had spent time developing business in Asean markets, including Malaysia, the Philippines, Singapore and Thailand, and targeting frontier markets such as Cambodia, Laos and Myanmar, said Denning.

“We couldn’t justify a roving salesperson chasing down opportunities in areas where we didn’t want to build our business out,” she noted. 

Lack of corporate pensions

Outside Hong Kong, Japan and Australia, Asian countries do not have substantial corporate – “or corporate-like” – pension markets, explained Denning, meaning work tended to be more project-orientated.

The likes of Malaysia, Singapore and South Korea do not have well developed corporate pension markets, said Denning, who is soon to leave her role.

Moreover, she added, in the Philippines and Indonesia corporate pensions are small and regulatory or cultural norms means they have not tended to invest internationally. As a result, she said, they were not big clients for any of the major firms.

The June/July issue of AsianInvestor magazine will contain an extended feature on investment consultancies and how they are repositioning their businesses in Asia in light of the challenges facing the investment industry.

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