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Asset Owners Turn to Investment Consultants to Guide Them Through Market Volatility
“Asset owners that were comfortable managing on their own and not putting money toward those types of services now are seeing more value in professional advice,” said Cerulli Associates’ Laura Levesque.
Asset owners are increasingly leaning on investment consultants to help them navigate market volatility and greater portfolio complexity.
Over a third of surveyed allocators said they were likely to either start using investment consultants or increase their use of investment consulting services over the next two years, according to a new report from Cerulli Associates. This includes 13 percent who planned to expand their use of consultants and 22 percent who intended to hire an investment consultant for the first time.
Fifty-three percent expected to maintain their current use of investment consultants, while only 6 percent planned to stop or decrease their use of consulting services, Cerulli said.
Laura Levesque, associate director of Cerulli’s institutional division and co-author of the report, attributed the growing emphasis on investment consultants to recent market upheaval. Amid a possible recession, high inflation, rising interest rates, downturned equity markets, and geopolitical uncertainty, Levesque said asset owners are looking for all the guidance they can get.
“Market volatility and overall market conditions are far more challenging,” she told Institutional Investor. “Asset owners that were comfortable managing on their own and not putting money toward those types of services now are seeing more value in professional advice and more robust manager research that comes along with an investment consultant.”
Increased allocation to private markets has also been a driver of investment consultant usage, Levesque added. Private market investments are notoriously opaque relative to public markets, and manager selection is as important as it is challenging, prompting asset owners to seek outside guidance during the investment process.
Among the asset owners surveyed by Cerulli, 77 percent said they expect to discuss changing their asset allocation with their consultants this year. Other commonly cited topics included portfolio holdings (69 percent), capital markets expectations (68 percent), and portfolio risks (67 percent).
As for the consultants, the vast majority (87 percent) said they expected to see increasing demand for environmental, social, and governance investing strategies from all client types in 2022.
Asset owners may also look to investment consultants to help them navigate emerging asset classes like cryptocurrency. But, according to Cerulli, only 27 percent of investment consultants currently cover cryptocurrency. That group estimated that only 11 percent of their clients have asked about digital assets. And, according to the report, only 18.8 percent of investment consultants said they had at least one client with an allocation to crypto assets.
“The numbers are lower than you might expect,” Levesque said. “Institutional clients have a higher bar for what they’re willing to invest in.”