Finding the 'best of breed' investment managers

Mercer's new mutli-manager venture has put Irish firms on guard, writes Caroline Madden

Global consulting firm Mercer announced earlier this week that it is expanding its multi-manager investment business, Mercer Global Investing (MGI), into Europe through its Dublin office.

The new venture is off to a promising start, with over $500 million (€397 million) already in assets under management. With the expertise of Mercer, the world's largest investment consultancy, at its fingertips, MGI Europe looks set to continue on this trajectory. But will its expansion come at the expense of Irish investment managers?

The attraction of multi-manager products is that they enable investors to diversify their portfolio among a wide range of specialised investment managers hand picked by providers such as MGI, who then monitor each manager's performance and swiftly replace those found to be underperforming.

"The investment world is becoming increasingly complex and many clients have asked Mercer to play a more active role in the investment decision-making process," said Tom Murphy, head of MGI Europe, who has found that some beleaguered pension fund trustees are more than happy to outsource difficult investment decisions. "Many trustees simply don't have the time or the expertise to hire and fire investment managers. It is an onerous task and a growing number want to delegate these decisions to investment experts."

When researching and selecting "best of breed" managers, MGI obviously looks further afield than Ireland's small pool of investment managers. In fact its researchers comb every far-flung corner of the globe in search of managers with the right levels of expertise and track records. So are Irish managers likely to be overlooked in favour of hotshot global players?

Frank O'Dwyer, chief executive of the Irish Association of Investment Managers (IAIM), felt that MGI Europe did not represent a "fundamental shake-up of the market". He pointed out that many domestic and global investment managers already offer multi-manager products to the Irish market. "It joins a suite of options that are already available," O'Dwyer said.

Despite the competition, Murphy is convinced that MGI is perfectly placed to succeed in this market, and to take on the biggest players in Europe. "Mercer is a natural provider of multi-manager services. While this is clearly a competitive marketplace, very few of our competitors possess the research pedigree and global reach of Mercers," he said.

Irish Life indicated that it is of the same opinion when it recently handed over the management of its own multi-manager fund to MGI Europe.

Standard Life set up its own multi-manager fund two years ago, and Jennifer Richards, investment director at Standard Life, said that although the fund has a short track record, there "definitely is an appetite" for the product.

In relation to MGI's entry to the market, Ms Richards believes that it offers an opportunity to Irish managers such as Standard Life. Mercer has a very large client base, Richards said, and to be one of the managers chosen by MGI would be "very positive". She said that increased competition in the marketplace is both "good and bad".

"Irish managers will undoubtedly be marketing their services to the likes of MGI," commented Paul McCarville, director at Setanta Asset Management. "The days when you could depend on brand name or captive distribution to gather assets are gone - now your offering has to stand up against that of the leading overseas players," McCarville commented in relation to the increased competition in the marketplace.

McCarville said that a significant barrier to the growth of multi-manager funds - or manager-of-manager (Mom) funds - is that they are invariably more expensive. "Longer-term the take up of Mom will, just like other forms of asset management, depend on being able to demonstrate that Mom is adding value," he added.

Despite the number of new entrants entering the market in recent years, multi-manager products have yet to make significant inroads into the pension funds sector. According to an Irish Association of Pension Funds (IAPF) asset allocation survey, less than 2 per cent of Irish pension fund assets were under management in a multi-manager fund at the end of 2005.

One commentator described the market as being at the "toe in the water" stage. Only time will tell whether investors are ready dive into the multi-manager philosophy en masse.