While benefits and considerations have been laid out, it’s worthwhile to dive deeper and bust four common considerations that we often hear on the asset consultant model.
In recent years, the line between asset consultant and asset manager has become blurred, with more solutions developed by asset consultants. However, asset consultants and asset managers work together to create solutions best suited for investors. As an example, WTW has launched over 200 products with asset managers, seeding or co-creating solutions aimed to maximize client outcomes. Recent examples include private markets co-investing, index creation, specialist liability driven investment solutions and trigger fund development to tactically invest during periods of market volatility. Asset consultants can act nimbly for clients, retaining the most appropriate asset managers to maximize the value from security selection.
However, most of the value derived for portfolios is attributable to management of the overall strategy and dynamism through rotating portfolios throughout market events. While it is critical to identify the absolute best-in-class managers to manage securities successfully, the contribution to outperformance from this activity is relatively small when compared with contributions from strategy and dynamic changes. Retaining an OCIO with an asset consulting heritage provides an optimal combination, balancing an overall portfolio framework that understands portfolio risks (whether that is pensions, actuarial or other liability risks) with a view on the asset management products that can best capitalize on market themes. WTW's dynamism and strong manager engagement to execute effectively have all helped to drive our OCIO outperformance.
Yes, this is true; asset consultants are focused on maximizing risk adjusted returns because it works for long-term return generation. While some studies show diversification has been unnecessary in recent years, asset consultants tend to take a forward-looking assessment of what portfolio is likely to be the most robust over the horizon of the client. Recent periods of market volatility have highlighted the changing nature of interest rates/inflation/geopolitical/sustainability regimes, and it’s important to prepare portfolios for this. This doesn’t; however, have to come at the expense of strong portfolio returns. Indeed, asset consultants can scour the asset management landscape to find the best ideas for clients, combining them in a way to create and manage resilient portfolios.
This is generally false after accounting for all revenues an OCIO receives from the engagement. A benefit of managing OCIO portfolios is helping clients optimize the total value of their investment program, reducing total costs inclusive of both OCIO and underlying asset manager fees. OCIO providers charge in different ways, and an asset owner needs to look at both the OCIO headline fee and all underlying fund fees of the asset management products utilized.
An asset management OCIO hadn’t linked the OCIO investment strategy to the wider corporate DB governance strategy or financial risks, leading to a mismatch in funded status assumptions at a magnitude of hundreds of millions of dollars. Security-level risk tools didn’t aggregate appropriately nor provide insights for the oversight committees to catch this.
Using WTW’s sophisticated portfolio risk tools, a four-suite reporting package was implemented to provide:
Explore more considerations for OCIOs here.
