Outsourcing Proves a Hit for Aon Hewitt | Chief Investment Officer

(October 3, 2013) – The delegated consulting trend looks set to continue, with 145 plan sponsors globally now using Aon Hewitt’s fiduciary service.

The 145 employers collectively have 220 pension funds and $40 billion of assets being run by the consultancy, Aon Hewitt has announced

The growth of the consultancy’s outsourced business has been driven by the US and the UK markets: In the US assets under management now exceed $26 billion, up from $19 billion in October 2012.

In the UK, Aon Hewitt provides delegated investment consulting services to 58 pension schemes from 40 scheme sponsors, representing over £5.5 billion, up from £4.1 billion in October last year.

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Aon Hewitt’s fiduciary service sees pension fund trustees delegate the day-to-day investment decision-making and implementation to the consultancy.

Ian Bailey, co-head of delegated consulting services at Aon Hewitt in the UK, said the growth in services represented an increase of almost 40% over the last 12 months. He added that all new UK clients had been won through a competitive process.

It’s not just Aon Hewitt picking up business in the fiduciary management space however. Press reports from last month showed Mercer’s fiduciary management business had grown by about 31% in terms of assets in the UK over the year to June, while Towers Watson reported that two-thirds of its new business in the last year has been fiduciary.

Rival consultancy JLT launched its own fiduciary platform in June 2012, and has taken on 60 mandates and £1.75 billion of assets under management in its first year.

Russell Investments reported in September that it had secured $14 billion in new investment outsourcing mandates globally over the last 18 months.

(October 2, 2013) – Hedge fund FX Concepts has lost yet another major institutional investor, the fund’s spokesman has confirmed.

“Did we lose some assets under management? Yes,” FX Concepts Chief Strategist Robert Savage told aiCIO. ”Are we restructuring and thinking about the next step? Yes. Can we say who the client is? No.”

That client is the San Francisco Employees’ Retirement System (SFERS), according to a source with knowledge of the situation.

The fund did not respond to requests for confirmation that it has initiated a divestment.

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However, an August 21 request for proposals document stated, “SFERS utilizes two currency overlay managers, FX Concepts and Adrian Lee & Partners, for a target of 50% of international equity assets.”

aiCIO received the initial tip alleging that SFERS had severed the relationship on September 26.

Last winter, the New York-based currency hedge fund lost two of its largest previous clients: the Pennsylvania Public School Employees' Retirement System and the Bayerische Versorgungskammer pension fund in Germany.

Prior to these investors pulling assets, FX Concepts employees had begun a mass exodus. Its former CFO Anthony Sacco departed in December 2011, after nearly 12 years at the previously vibrant firm. He is now a real estate agent, based in Delaware.

Furthermore, in November 2011 aiCIO reported that the fund had lost three other senior employees.

The firm's former Head of Investment Research Jim Conklin left to go to Greenwich, Connecticut-based QFS Asset Management as director of research. He has retained this position. Former Fixed Income Managing Director Tim O’Grady left FX Concepts in September 2011 after two years at the firm. Brett Holleman—previously managing director and portfolio manager with the currency-trading firm—also departed around that time.

FX Concepts, one of the most established and best-known currency hedge funds, has suffered along with many of its peers. It manages currencies for institutional investors through overlay and absolute return programs—services which have fallen out of favor in the last several years.

“FX as an asset class is being doubted,” Savage said. “Some of the institutional clients who viewed it as an asset class have been throwing in the towel.”

At the core of currency funds’ problems, according to Savage, is a short-term outlook by asset owners.

“Insurance is never worth it when you look at the premiums; it’s only worth it when you look at the disasters,” he said. “It’s true: we have had big drawdowns in our assets under management since 2007. But the real story is about what’s going on with this sector as a whole.”