There is definite proof that sustainability-focused funds are outperforming their conventional counterparts. But some experts believe the traditional explanations for this are wrong.
The decision by Watson Wyatt to alter its business position in Singapore caps the gradual usurption of its once-dominant role by rival Mercer Investment Consulting, which has emerged as the only major player activelyáproviding investment consulting advice to local institutions. But it also shows how Watson Wyatt has been reorienting its business toward the larger prospects to be found in China, Korea and Taiwan, as well as its ongoing lead position in Hong Kong.
Watson Wyatt aggressively went after Singaporean institutions in 1998 when the government encouraged statutory boards, government-linked corporate pension funds and various ministry funds to invest internationally, a movement led by the $100 billion-plus Government Investment Corporation (GIC) and the Monetary Authority of Singapore (MAS). Led by experienced consultants on the groundásuch as Andrew Budden and Jon Robinson, the firm came to represent virtually the entire universe of institutions.
In 2000 rival Towers Perrin threw in the towel and sold its research business to Russell Investment Group, which maintains a business in Singapore but one oriented around marketing its multi-manager service. Mercer, the region's other player, hadn't had senior people based in Singapore, with then-managing director Richard Nuzum based in Tokyo, and lost out.
But Robinson and Budden left Watson Wyatt - Robinson to join Vanguard, Budden to join Capital International - and since mid-2004 the firm lacked that steady, experienced hand in Singapore, say industry sources. Given its huge client list, insiders say servicing became difficult. Industry executives say that Singaporean institutions are ultimately facets of the same customer - the government - and that disgruntlement among one customer can rapidly spread. Watson Wyatt's Hong Kong-basedáregional managing director, Naomi Denning, accepts that service levels have suffered in part because of profitability issues.
Perhaps more importantly, the universe of institutions has lost some of its cohesion. The GIC quickly builtáin-house expertise in asset management and stopped using external consultants. Since then, some other institutions have followed, or became willing to consider alternatives.
In the meantime, Mercer had realized its mistake and began to build from scratch. This effort began in 2001áwhen Nuzum transferred to Singapore and won a mandate to help the Central Provident Fund consider structural reforms. Mercer has made Singapore its regional headquarters and built a team, now led by Garry Hawker. As Watson Wyatt struggled with staff, Mercer was ready when in 2005 many of the stat boards engaged in a periodic review of consultants, and many switched.
Industry professionals say Singapore is structurally unable to accommodate more than one high-end investment consultant. It lacks the scale of Hong Kong, with its corporate pensions market, to support a high-volume, commoditized service, and has only a small number of institutions willing to pay for the kind of expensive, value-added advice given by the likes of Watson Wyatt or Mercer, particularly now that many institutions feel they understand offshore investing well enough to stop using consultants. "Mercer had nothing in this market but now the coin has flipped," says one insider.
Denning says Watson Wyatt remains active in Singapore and notes that the firm has already transformed Singapore and Malaysia into a single business, and is transferring more resources to Kuala Lumpur. Clients in Singapore will continue to be serviced by Su-Shzan Patt, who will now relocate to KL, and manager research will continue in Singapore under CY Foo. The Hong Kong office will also support client-servicing efforts in Singapore, she says.
"We have taken the decision to have our resources located in fewer larger clusters rather than having smaller teams in every location," Denning says.á"We believe that this is better for managing key man risk, staff morale, overall quality of service and profitability -- all of which are ultimately better for client satisfaction...Whilst it may appear that Watson Wyatt has suffered recently, ultimately we think it is the clients who suffer if they receive poor service because the consultant can't afford to service them well and retain staff.
"The clients would therefore potentially benefit from ensuring that the fees they pay will cover the cost of service, rather than seeking the lowest fee, which can often be a key driver.áMany of the recent changes at Watson Wyatt have been made to address the issues highlighted above so that we can serve our clients better. We believe that this is in the interests of all our clients across the region. We continue to grow our team in Asia and have been adding resources for North Asia, including China. As you know, Watson Wyatt has Hong Kong as its regional hub and has both the largest team in HK and collectively the largest team in Asia."
Mercer's Hawker says the firm's priority now is to hire two senior consultants in order to maintain a high level of client service: "We need to get the people aspect sorted to make sure we can deliver. If investment standards change for one client, the others will know."
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