Following Outsourcing Trend, Mercer Creates New Global CIO for Mainstream Assets

(July 27, 2011)—Mercer has created a new global chief investment officer of mainstream assets and appointed Russell Clarke, the consultant’s current chief investment officer for Asia Pacific, to the position, indicating that Mercer is increasingly focusing on growing its investment management business.

Mercer’s move underscores the recent trend that consultants have undertaken towards offering more discretionary consulting—which involves implementing investment decisions on behalf of clients as opposed to simply offering advice. The creation of the global chief investment officer position indicates that Mercer is serious about expanding its $44 billion investment management business.

“Our business is growing rapidly – both in terms of assets under management and the range of investment strategies we’re bringing to market in response to client needs,” Andrew Kirton, Mercer’s London-based Global CIO, said in a release. “As we evolve our portfolio management activities to an increasingly global footing and integrate it more closely with the underlying strategic and manager research that underpins it, the need for a pivotal leadership role in managing the challenges of the growing scale and complexity has become apparent.”

In the position, Clarke will oversee all portfolio management activities with mainstream assets such as equities, property, fixed interest and multi-asset portfolios within Mercer’s investment management business.

Many consultants have made significant moves into the discretionary consulting space in recent months. In June, Cambridge, Massachusetts-based NEPC announced that it was belatedly entering the field where many  of its competitors including Russell, SEI, Wilshire, and Mercer were already present.

“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.”

Consulting firms are embracing discretionary consulting because it provides a much more robust revenue stream than simply providing advice to clients. Though the upfront cost for creating discretionary units is high and the units sometimes take years to become profitable, the long-term benefit of charging higher fees is greatly appealing to consultants.

The decision for asset owners to outsource investment decisions is less clear-cut. While the ability to defer investment decision-making to a professional and well-known consultant is appealing, potential conflicts of interest between the asset owners and their consultants have made the transition difficult.

Click here to read “Consultant Corner: Investment Outsourcing” from aiCIO’s summer issue that discusses the allure and the possible pitfalls of investment outsourcing. Click here to watch KC Connors, a partner at consulting firm NEPC, speak with aiCIO about the firm’s decision to offer discretionary consulting services.