With Rocaton Push Into Outsourced Investing, Consulting Continues to Change

Rocaton Investment Advisors has launched discretionary consulting services to reap better margins and for the need to adapt as its clients' needs change, says Robin Pellish, the investment consulting firm's CEO.

(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.

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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.

(March 28, 2012) — Record outflows from government bond funds last week showed investors were ready to take on more risk, but further unsettlement and disappointing economic figures this week could indicate they have moved too soon.

At $1.01 billion, outflows from United States long term government bond funds were the biggest on record last week, according to market monitor EPFR, and investors pulled over $13 billion from US Money Market Funds, the company said.

Elsewhere in fixed-income, investors were turning against low yielding assets, EPFR said, citing commitments to bond funds as the smallest since the first week of the year.

EPFR said: “The search for undervalued stocks did see retail investors commit money to Europe Equity Funds for the first time since mid-2Q11 while dividend equity funds posted inflows for the 62nd time in the 64 weeks since the beginning of 2011.”

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However, investors may have moved too soon.

This morning the Office of National Statistics in the United Kingdom revised down its estimate for the country’s growth for the last three months of last year, from a negative 0.2% to a negative 0.3%, with most of the downward revision being made to household and government expenditure, while the contribution from inventories was increased.

Azad Zangana, European Economist at Schroders, said the figures for the first quarter of the year were also revised down by 0.2%, with the second three months revised down by 0.1%, which means the economy contracted in the second quarter of last year where it had previously thought to have been flat.

Zangana said: “The latest GDP data is significantly worse than expected and shows weaker momentum heading into 2012. Growth for 2011 as a whole is now 0.7% rather than the previous estimate of 0.9%. Our view is that the weakness highlighted in this release in combination with the poor production and retail sales data so far for, it is more likely than not that the economy also contracted in the first three months of this year, which would put the UK in a technical recession.”

Elsewhere, European markets were abuzz with rumours of a potential Spanish bailout as the country continued to struggle with its debt and poor growth projection.

Spanish Prime Minister Mariano Rajoy told reporters in South Korea that Spanish ministries will be required to cut their budgets by 14-15% as part of the new set of austerity measures that are to be set out at the end of the week.

Further north, politicians in the Netherlands, which had been one of the stronger economies in the Eurozone, admitted this week that it was struggling to agree how to slash its national deficit. The country received an unfortunate double-whammy as analysts at investment bank Citi said it should no longer be classed as a ‘core’ nation to the beleaguered Eurozone.