It was announced yesterday that consulting firm Mercer has agreed to acquire most of Summit Strategies Group’s asset consulting business and Pavilion Financial Corp. (Canadian consulting firm). The acquisition brings more than $800 billion in AUA/AUM to Mercer and further consolidates an already concentrated industry. Mercer indicated that acquiring these two entities will strengthen their presence in the non-profit universe.
They also believe that adding additional research resources, especially among alternative investments, will permit them to be more responsive to new innovation among niche strategies. As part of the deal, Summit’s public fund business is being sold to AndCo Consulting.
However, do these deals ultimately help or hurt the plan sponsor community? Consolidation among asset consulting firms has been on-going for a while as the original owners/pioneers have looked to capitalize on the businesses that they have built (Marco, RogersCasey, Ennis, Knupp, Hammond, and Watson, Wyatt to name but a few). These transactions may provide some economies of scale for the acquiring entity, but it also narrows differences in thought/approaches and the generation of new ideas.
In an industry that does much to support emerging managers and new investment products, it seems that only size matters when choosing asset consultants, particularly in the defined benefit universe. But, where are the benefits? We have frequently voiced our concerns about the lack of innovative thinking when it comes to managing a DB plan. We believe that the focus on the return on asset assumption continues to plague our retirement industry while supporting the notion that deep research teams are needed to wade through the 1,000s of managers and products.
However, managing a DB pension plan is all about providing the promise at the lowest cost and not the highest return. Furthermore, with the lack of success among many (most) active managers, how good has this research effort truly been? Despite an effort to support emerging firms there still exist many constraints (arbitrary) to review and use smaller, less tenured asset management organizations that have less than a 5-year track record and fewer than $500 million in AUM.
If consolidation is needed to sure up the economics for these firms, perhaps a greater effort should be undertaken to price the consulting services based on their true value added, and not try to undercut the competition by giving away the business in order to acquire AUA. Asset/liability consultants are a critical component in the management of a successful retirement program. The consolidation that we are witnessing does little to encourage the challenging of the status quo.