Report: Asset Managers Still ‘Very Dependent’ on Consultants

Pension fund mandates largely remain under the influence of investment consultants, even as the consulting business model comes under pressure, Cerulli finds.

Cole Burston/Bloomberg

Cole Burston/Bloomberg

Asset managers continue to be reliant on investment consultants for business from pension fund clients, according to new research from Cerulli Associates.

The asset management research firm’s latest survey of North American asset managers found that 59 percent were “very dependent” on consultants for mandates from corporate, state, and local defined benefit plans, despite headwinds facing the traditional advisory consulting model.

“It behooves managers to develop strong relationships with the consulting community,” said Chris Mason, a senior analyst at Cerulli, in an interview.

Last year, Cerulli reported that 90 percent of public pensions larger than $5 billion worked with at least one consultant. Meanwhile, the use of outsourced-CIO services — in which consultants or other providers perform investment management functions on behalf of asset owners — continues to grow. A Natixis Investment Managers survey released in February found that 44 percent of institutional investors already outsourced to some extent, while another 17 percent were considering it.

[II Deep Dive: The Relentless Rise of Investment Outsourcing]

Consultants polled by Cerulli expected OCIO business to account for 23 percent of client assets over the next three years. A lack of internal resources and desire to improve governance processes were cited as the top reasons why institutional investors moved to OCIO models.


According to Mason, OCIO services typically lead to more attractive profit margins than advisory consulting, which has traditionally had very tight fee margins. These days, clients are seeking more for less, demanding both more customized and comprehensive services and lower fees.

This fee compression has only added to the appeal of the OCIO model for investment consulting firms.

“Many — not all, but many — consultants have been interested in or expanded into OCIO business,” Mason said.

According to Cerulli, the pressure on fees has also led to spike in merger and acquisition activity among consulting firms. Last year, for instance, Segal Rogerscasey acquired competitor Marco Consulting Group. The year before, a mega merger was completed between consulting giants Willis Group and Towers Watson.

Mason said consulting firms see mergers as a way to increase economies of scale or access a new client type or area of expertise.

“With fees coming down, it’s really squeezing these consultants with already tight margins,” Mason said. “That’s the primary reason for M&A activity.”