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To What Types Of Clients
Does Mercer Provide Investment Consulting Advice?
Mercer provides investment consulting advice and services to a wide
variety of clients including pension plan sponsors, life and non-life
insurance companies, other financial institutions, central banks,
statutory boards, foundations, endowments, high net worth individuals
and other institutional investors. Globally, Mercer works with more
than 2500 clients of which more than 950 clients representing in
excess of US$2 trillion in assets are on retainer. Our clients range
from some of the world's largest institutional asset pools with
in excess of US$100 billion to invest to funds with less than US$1
million in assets. All clients, regardless of size, get Mercer's
best advice.
Mercer offers investment consulting services to clients in all countries
within the Asia/Pacific region, and will be pleased to bid for investment
consulting work in any Asian market. To date, we have delivered
investment consulting advice to clients in the following Asia/Pacific
countries:
- Australia
- Brunei
- China (PRC)
- Fiji
- Hong Kong
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- Indonesia
- Korea
- Malaysia
- New Zealand
- Philippines
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- Japan
- Singapore
- Taiwan
- Thailand
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Although Mercer's investment consulting practice does not provide
consulting services directly to retail investors in Asia, we do
provide via print and electronic channels a variety of information
useful for financial planners and individual investors seeking to
make investment decisions. |
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What Are Mercer's Investment
Consulting Services?
The Mercer Investment Planning Cycle
The investment consulting services we provide are designed to assist
investors in all aspects of decision-making related to the investment
of their assets. These activities are summarized in general terms
by the Mercer Investment Planning Cycle, which graphically
represents the ongoing process of developing, implementing and monitoring
the success of investment strategy.
Although inter-linked, each of these stages can be considered separately.
Our core investment consulting services are described in greater
detail below under Mercer's Investment Consulting
Services - An Overview and Mercer's Investment
Consulting Services - A More Detailed Description.
The following is a list of some of the specific services we offer:
- Assistance with fund governance, including establishment &
review of fiduciary oversight policies
- Board/Investment Committee/Trustee education on investment
or governance-related topics
- Assistance with defining investment objectives based on a
review of fund requirements
- Can include specific financial modeling of fund requirements
for pension, insurance, bank, statutory board or endowment/foundation
asset pools
- Establishment & review of investment strategy
- Establishment & review of funding policy
- Strategic asset allocation analysis
- Asset and liability modeling
- Again, can include modeling of liabilities, or of the
probability distribution of expenditure requirements, for
pension, insurance, bank, statutory board or endowment/foundation
asset pools
- Advice on use of internal versus external investment management
- Investment manager search & selection, for both core and alternative
asset classes including hedge funds, private equity and real
estate
- Vendor search & selection, e.g., for defined contribution
record-keepers or plan administrators, or for bundled providers
of defined contribution investment and record-keeping services
- Search & selection of other service providers such as trustees
& custodians
- Monitoring & review of investment managers and other service
providers
- Fee negotiation and assistance with negotiation of investment-related
components of fund management agreements or other contracts
with providers of investment-related services
- Review from an investments standpoint of prospectuses or offering
memoranda
- Transition management
- Conduct of performance evaluation and monitoring, including
both quantitative analysis of investment results and qualitative
monitoring of fund managers and other providers
- Includes assisting with performance attribution analysis
- Includes conduct of on-site due diligence on investment
managers
- Vendor monitoring
- Custody and trust monitoring
- Investment performance surveys
- Provision of Mercer manager performance analytics (MPA) software
together with Mercer universes, for example to permit in-house
conduct of investment performance monitoring and manager performance
comparisons
- Establishment and review of brokerage and soft dollar policy
- Transactions cost analysis
- Establishment and review of proxy voting and corporate governance
policies
- Advice on participant investment education and communication
- Assistance with retail product design (where not ruled out
by potential conflicts of interest)
- Specifically, advice on product array for retail or defined
contribution product lineups, target asset allocations for
life cycle funds, selection and monitoring of sub-advisors,
and development of marketing/communications material
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Mercer's Investment Consulting
Services - An Overview
In Mercer's view, and subject to discussion with each specific individual
client, an appropriate investment strategy for our client's funds
will be one which:
- Is consistent with our client's time horizon for investment;
- Takes into account any potential needs for liquidity;
- Has an acceptably high probability of meeting our client's
objectives in terms of real growth (i.e., growth net of inflation)
in value over time;
- Has an acceptably low probability of providing results which
fall below our client's minimum requirements for real growth
in value over time; and,
- Can be readily implemented and monitored on an ongoing basis
(i.e., without placing an undue burden on our client in terms
of either required monitoring time or fees).
Our overall objective is to provide each of our clients with an
optimal, fully customized investment strategy based on unbiased
and independent investment analysis and recommendations with respect
to selection of asset classes, managers and other issues.
In order to achieve these objectives, we typically propose to break
our initial work with a new client into seven stages as follows:
| Stage 1: |
Review our client's fund requirements & needs, and make
recommendations on investment objectives and guidelines; |
| Stage 2: |
Review and advise on the investment strategy for the fund
and the strategic asset allocation required to meet the investment
objectives; |
| Stage 3: |
Develop and make recommendations on other aspects of an
appropriate investment management structure, i.e., the number
and types of investment managers to be employed and the role
to be played by each; |
| Stage 4: |
Evaluate our client's current strategic asset allocation,
investment roles and investment guidelines, the capabilities
of the incumbent internal and external managers, and the structure
of our client's current custody arrangements as well as the
capabilities of the external custodian(s). Based on a cost/benefit
analysis, we make recommendations for change where warranted;
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| Stage 5: |
Evaluate and recommend external fund managers as needed.
For each role for which candidates are to be recommended,
Mercer will typically present an analysis of a group of 3-9
(or more) recommended candidates who offer services at the
anticipated account size. The analysis which is presented
to our client will typically include:
(a) Historical return comparisons of the candidates' track
records versus an appropriate manager universe and benchmark
index;
(b) A summary of Mercer's qualitative research analyzing each
candidate's investment process and the strength of each candidate's
team of investment professionals, as well as a myriad of other
qualitative factors; and,
(c) If requested, Mercer will arrange and attend finalist
presentations to our client's Investment Committee by candidates
for roles in the investment program; |
| Stage 6: |
Evaluate and recommend an external custodian. Mercer will
provide a comparison of the services, financial standing and
fees of a group of recommended providers of custody services,
and will recommend one of these to our client; and, |
| Stage 7: |
Assist with transition management. As a transition manager,
Mercer advises on issues of timing as well as other issues
related to implementation including minimization of transactions
costs and control of market exposures and basis risk relative
to the desired target allocation. |
| Subsequent to implementation of a revised investment
strategy, the following ongoing work is typically required:
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| Stage 8: |
Monitor qualitative factors related to the fund managers,
reporting as warranted, and periodically develop formal reports
comprising quantitative performance evaluation and qualitative
findings for each investment manager and for the investment
program as a whole; and, |
| Stage 9: |
Provide ongoing advice to our client on investment issues
as required, including revisiting aspects of Stages 1 through
7 as needed. |
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| Mercer's Investment Consulting
Services - A More Detailed Description
The following is some additional detail on our services in specific
areas.
Designing Investment Management Structure and Determining
Manager Roles
We focus on both the theoretical and practical advantages and
disadvantages of different manager structures in order to help
our client get a full understanding of the relevant issues. Consideration
is taken of balanced versus specialist management, active versus
passive management, use of complementary managers, fees, monitoring
requirements and a number of other issues. At all times we are
looking for structures which provide a reasonable level of return
without risking too much on the downside.
The aim of our analysis is to seek a manager structure with which
our client can work well, and which has the greatest likelihood
of achieving our clients' investment objectives. Our long years
of experience of working with a wide variety of client groups
and manager structures gives us a high degree of confidence of
putting in place an optimal manager structure. We have also developed
a quantitative analytical framework that helps us provide an objective
basis on which our clients can base their decisions about investment
management structure. For more information about this framework,
please contact a Mercer investment consultant.
Manager Research and Selection Advice
Mercer has substantial experience in advising on manager selections,
and advises on more institutional manager selection assignments
each year, resulting in placement of more assets, than any competitor.
For example, during calendar 2000 we advised on 800 institutional
manager selection assignments on behalf of our clients, as a result
of which US$61.5 billion was placed. These included 246 assignments
for clients in the Asia/Pacific region. In calendar 1999, we advised
on 769 selection assignments, resulting in placement of US$52.1
billion, including 208 assignments for clients in the Asia/Pacific
region. In 1998 we advised on a total of 737 manager selections
world-wide including 270 for Asia/Pacific-based clients, and during
1997 we advised on a total of 634 manager selections world-wide
including 227 for Asia/Pacific-based clients.
To support this level of activity, Mercer devotes an industry-leading
level of resources to research on investment managers. In addition
to the research efforts of our field consultants, Mercer employs
25 full-time manager research specialists. Our global research
network has centres in every major financial center in the world.
Each year, we devote over 69,000 man hours to dedicated investment
manager research globally and over 14,000 in the Asia/Pacific
region. We believe this is fundamentally important to our role
as investment consultants in an investment management market that
is itself becoming increasingly globalised.
Mercer's Global Investment Manager Database (GIMD)
We also use industry-leading technology to support our research
efforts. Our internet-based, global investment manager database,
MercerGIMD.com (GIMD), gives all of our consultants globally,
and all of the investment managers who provide information to
us, 24 hour real-time on-line access to GIMD. None of our competitors
have a globally integrated and consistent, web-based information
management tool like GIMD. Every time a Mercer consultant conducts
a research meeting with a manager, they document this meeting
in a research note posted on GIMD, which is then immediately available
to all of Mercer's investment consultants globally. Because of
Mercer's dominant presence in the area of manager selection, investment
managers will typically post more information on GIMD, and more
quickly, than for competitor's non-internet-based databases. Again,
this information is immediately available to all Mercer investment
consultants globally. GIMD currently has information on more than
7,000 investment products offered by more than 2000 investment
managers around the world. For a demonstration of the capabilities
and coverage of GIMD, please contact a Mercer
investment consultant.
Investment Manager Research Philosophy
We strongly believe that helping our clients identify and select
those investment managers most likely to meet performance objectives
is a vital part of the investment consultant's role. Our research
process for establishing Mercer's view on each investment manager
involves a combination of research conducted through on-site visits
to investment managers, statistical analysis and the direct experience
of our client consultant teams.
Our primary aim is to assess the prospects for medium term outperformance
and the risk associated with those prospects. Past performance
may give some clues, but it is not a good guide to future returns.
It is important to distinguish between skill and luck. The process
of distinguishing between skill and luck can be divided into quantitative
and qualitative analysis.
Our Research Process
Performance analysis, risk analysis and style analysis are quantitative
tools that allow us to do desk research in preparation for face-to-face
manager research visits. This quantitative analysis helps us identify
certain characteristics about the way that a particular manager
has managed portfolios in the past. By identifying past strengths
and weaknesses, we can use this information in an interview to
test whether the manager's current strengths and weaknesses fit
the past pattern. It may be that weaknesses are being addressed
or, indeed, that the perceived strengths no longer exist.
Research visits are typically carried out on one product at a
time as our rating system calls for individual products to be
rated - a firm is not rated in its entirety. Meetings will follow
a prearranged agenda set by our researchers to make certain that
weaknesses are being addressed and that strengths are still in
place. The results of the on-site visits and in-depth interviews
generate a series of key observations and comments documented
in the manager research notes and most importantly a rating recommendation.
These are passed on to the relevant manager rating committee for
approval of the rating. Once the rating is approved, the notes
are also disseminated throughout the global Mercer network and
are stored on a database for future reference.
Quantitative Analysis
Mercer uses a wide variety of tools and approaches in conducting
quantitative analysis. To increase the efficiency with which we
can conduct quantitative analysis, Mercer has continually invested
in the development of sophisticated software. For example the
Mercer MPA (Manager Performance Analytics) software, initially
developed in Australia, is now used globally. Mercer MPA is an
extremely powerful performance analytics and presentation software
package. For more information on Mercer MPA, please contact a
Mercer investment consultant.
Investment manager style analysis can make a major contribution
both to defining an effective investment management structure
and to monitoring the managers within that structure. This is
an area where, through our exclusive research agreement with Style
Research Associates (Style Research), we believe Mercer can demonstrate
clear leadership over our competitors. For more information about
how we apply Style Research, please contact a Mercer
investment consultant.
Qualitative Analysis
In terms of the qualitative evaluation of the investment process,
the key decision makers and business management issues are more
important. We are looking for a sustainable competitive advantage
and for any potential weaknesses.
Custody Research and Selection
Mercer's Global Custody Group (comprised of our Custody Evaluation
Committee members plus other custody specialists) uses a centralised
and disciplined process to analyse global master trust and custody
businesses across the Asia/Pacific region, North America and Europe.
This dynamic process combines the knowledge of our field consultants
worldwide with the dedicated resources of the Global Custody Group.
Members of Mercer's Global Custody Group have significant practical
experience in banking, risk analysis and custody operations as
well as investment consulting. Our work encompasses general custody
searches for a wide variety of public and private clients as well
as specific project-based analyses. For more information about
how we assist with custody-related assignments, please contact
a Mercer investment consultant.
Transition Management
A poorly implemented transition can be very costly due to commissions
and market impact from trades. A transition which leaves a substantial
portion of the assets in cash during a period in which the market
moves up can result in massive opportunity cost.
In this context, we view our role as a transition manager as being
to manage complex portfolio transitions to help our clients achieve
cost efficiencies, maintain effective market exposure and ensure
completion within an appropriate timescale. Our role is to achieve
an effective and cost efficient transition of assets from the
"current" investment managers to the "target" investment managers.
For more information about how we assist with transition management,
please contact a Mercer investment consultant.
Monitoring Investment Managers
We believe that, once our client has established their investment
program, it is critical that this program be monitored on an ongoing
basis. This will mean a retrospective review of investment performance
against benchmark and performance objectives as well as a prospective
assessment of the expectations for future performance. It covers
not just the investment performance of the investment managers,
but also the effectiveness of the manager structure and long term
investment strategy in achieving our client's objectives and,
ultimately, a review of the objectives themselves to ensure that
they remain appropriate to our client's circumstances.
Mercer's Assistance in Monitoring
Mercer assists our client in all the following aspects of performance
monitoring:
- Formal quarterly, half-yearly or annual performance and portfolio
reviews. A performance review usually looks at performance over
recent periods and the longer term. A portfolio review looks
at the current state of the portfolio by, for example, analysing
equity industry sector and stock positions as well as including
output from some of our sophisticated evaluation software.
- Monitoring of developments at the investment managers. We
offer a specially designed Proactive Investment Manager Monitoring
Service (PIMMS) for this task. PIMMS operates on a number of
levels depending on your requirements. At a basic level it involves
a commitment to provide the Client with a timely response whenever
a significant event occurs at a fund manager that may have implications
for the future performance of the Fund's assets. At a higher
level PIMMS includes an annual monitoring report discussing
in detail the investment process, personnel and organizational
issues at a fund manager.
- Attendance at client meetings, both to present a Mercer performance
report and to assist the client in receiving a presentation
from their fund manager through, for example, providing guidance
on questions to ask.
For more information about how we assist with monitoring, please
contact a Mercer investment consultant.
Other Services
Mercer is also able to assist our clients in implementation of
all the decisions discussed above. For example, if a change of
investment manager takes place, we are able to help negotiate
fees and to provide advice on the investment-related aspects of
the investment management agreement and we can, if appropriate,
oversee the transfer process between managers (as described under
"Transition Management" above). We are more than happy to respond
to any client requests for advice on an ad hoc basis, such as
projects researching specific areas of interest to our client.
For more information about how we assist with special projects,
please contact a Mercer investment consultant.
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Why Do Investors Use
Investment Consultants?
We believe that clients benefit most from the experience of investment
decision-making, and the specialist knowledge of investment issues,
that Mercer investment consultants can bring to bear on their
behalf. Clients also benefit from the proprietary technology,
methodologies, research and information that Mercer is able to
maintain, given our ability to leverage investments over more
than 2500 clients.
Concretely, Mercer is able to help clients:
- Better articulate their objectives, based on long experience
helping clients in similar situations, and based on experience
around the world throughout a very wide range of economic and
market environments.
- Better match these objectives with long-term investment
strategies, in particular as relates to the strategic asset
allocation decision. Again, our experience around the world
throughout a very wide range of economic and market environments
helps us help our clients avoid negative surprises and minimize
the chance of an unacceptable outcome.
- Combine managers in ways that maximize the amount of expected
value added while minimizing the risk of underperformance.
By combining active managers who take different approaches to
the market, it is possible to create an investment program that
can reasonably be expected to provide a much more stable and
consistent pattern of outperformance than would any single manager.
Mercer is well equipped to help clients answer the question
- how many and what types of managers should we hire - based
on objective analysis of the myriad relevant pros and cons.
- Select investment managers that have a high probability
of outperformance. Past performance by itself is not a
good predictor of future success. However, we have found that
sophisticated attribution analysis of past performance, coupled
with analysis of the prevailing market environment, and most
importantly coupled with in-depth qualitative analysis of the
investment process, team, organization and other forward-looking
factors, can massively improve the chances of achieving outperformance
in the future. Mercer monitors the results of our manager ratings,
and we know that we're adding a lot of value for clients in
making manager recommendations, relative to the results they
would have achieved basing decisions on past performance.
- Monitor managers in a way that helps reduce the possibility
of experiencing unacceptable results. Since past performance
is a poor predictor of future success, monitoring the performance
of incumbent managers does not add a lot of value for clients
trying to achieve good investment results. Coupling sophisticated
performance attribution analysis with monitoring of forward-looking,
often qualitative factors can add value. Sometimes, the value
is added by surfacing a need to terminate an investment management
relationship before poor investment performance is achieved.
At other times, the value is added by supporting a recommendation
to continue using an investment manager that has temporarily
underperformed, but which is expected to outperform going forward.
Mercer monitors the value added from our advice. We know we're adding
value for our clients that dwarfs the level of consulting fees we
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How Is Mercer Different
From Other Investment Consultants?
All investment advice to Mercer clients is provided through our
specialist investment consulting practice. In contrast to many
competitors, we do not permit individuals who lack extensive specialist
expertise and experience in the area of investments to advise
on investment-related issues.
Mercer's investment consulting practice is the largest investment
consulting organization in the world, employing more than 500
full-time investment professionals (i.e., excluding support staff)
who work exclusively on investment issues. We employ over 75 investment
consulting staff in the Asia/Pacific region alone. Mercer currently
services more than 2,500 investing consulting clients throughout
the world, of which our more than 950 retainer clients represent
more than US$2.0 trillion in assets. These include retainer clients
in Asia representing more than US$251 billion, and project clients
in Asia representing in excess of an additional US$600 billion.
Bigger is not necessarily better, but we believe our breadth
and depth of experience give us an unrivalled knowledge of investment
issues our clients may face, both practical and theoretical. Our
size also allows us to invest more heavily than competitors in
research on managers, custodians and capital market issues to
the benefit of our clients. We believe we have unmatched experience
and global intellectual capital due in part to the level of research
we are able to support given our size and also due to our more
than 50 years of experience providing investment consulting advice.
Our size is particularly beneficial in the area of manager research.
Worldwide, Mercer employs 25 full-time manager research specialists,
who contribute to a globally integrated research process, together
with dozens of field consultants who dedicate a significant portion
of their time to manager research. We invest more than 69,000
man hours per year in conducting investment manager research,
a level of research investment we believe is unmatched by any
competitor in our industry. Our global investment manager database,
GIMD, covers more than 7,000 investment products offered by more
than 2,000 investment managers. In addition to covering a broader
range of firms and products, we believe GIMD does so in a level
of detail that is unmatched within our industry. GIMD is also
to our knowledge the only database maintained by a global competitor
that is globally integrated and internet-based. This means that
all of our consultants, as well as the investment managers that
post data to GIMD, have real-time on-line access from anywhere
in the world to our most up-to-date data and research. These considerable
resources are brought to bear on behalf of our clients.
We have to maintain this level of research to support the volume
of manager selection activity we conduct. For example, during
calendar 2000 we advised on 800 institutional manager selection
assignments on behalf of our clients, as a result of which US$61.5
billion was placed. This represents the largest volume of assets
placed by any investment consultant globally. These included 246
assignments for clients in the Asia/Pacific region. In calendar
1999, we advised on 769 selection assignments, resulting in placement
of US$52.1 billion, including 208 assignments for clients in the
Asia/Pacific region. In 1998 we advised on a total of 737 manager
selections world-wide including 270 for Asia/Pacific-based clients,
and during 1997 we advised on a total of 634 manager selections
world-wide including 227 for Asia/Pacific-based clients.
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