Mercer’s joint venture to shake up pensions

MERCER Investment Consulting yesterday launched a new joint venture investment service that will shake up the Irish pensions market.

Aimed at small-to-medium-sized defined benefit funds it will offer funds as small as 5m access to the best investment managers in the world.

The offering combines Mercer’s investment consulting expertise with the fund management skills of Attica Asset Management.

Set up in 1999 by former Mercer personnel, Attica is already making a name for itself on the international fund management scene.

It is responsible at this stage for placing 100bn of investment assets with international fund managers.

Head of Mercer’s consultancy arm, Tom Murphy, said the service involves the group in a conflict of interest which will be declared to all of its clients given the basic pension consultancy service offered by the group that has to remain objective, he said.

To ensure full objectivity there will be no commissions or additional bonuses paid to employees who sell the Mercer 360 package to existing or new schemes if any come on the market down the line.

Mercer is consultant to over half the pension funds in Ireland. Up to 70% of defined benefit plans fit the 5m to 50m category so Mr Murphy believes that

a huge gap in the market exists for such an added-

value service to funds that until now could not afford it.

Moving to the new product does remove power from trustees because investment management selection will be handed over to Attica.

“Some trustees may not want to go along with that”, he said.

Costs will be a factor and fees for a Mercer 360 type fund will be 0.55% of assets under management based on a 65/35 equity bond split.

That compares with under 0.4% for balanced funds that offer little in the way of hands-on client services or access to the fund managers and are substantially cheaper than existing funds that offer comparable services, Mercer said.

Mr Murphy said the new service will offer a hands-on aspect previously not available to Irish pension funds and he expects the arrival of Mercer 360 will have a sharp impact.

By contrast large plans try to anticipate changes in managers.

NTMA has dedicated people to keep an eye on their managers on a proactive basis, he said.

Brian Gray’s departure form Montgomery Oppenheim last week, one of the most successful fund operators in the category of late, was a case in point.

Mercer 360 will allow small or mid-sized clients gain access to continuous manager evaluation.

There will be someone on top of the structure who will continually assess the managers who will be managing the stocks and shares. Mercer will not manage any assets. We will not be picking stocks and we will not be responsible for choosing the underlying managers.

Mr Murphy said lots of smaller funds had a benchmark. “They are following an average and that average may by luck be appropriate, but the chances are it is probably not appropriate because they have their own liability profile,” he said.

They also face the issue of under performance of investment managers which the new product addresses, he said.