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Why Asian investors are delegating strategy implementation
Extremely volatile and highly uncertain markets have been putting a heavier burden on Asian investment managers, who are now resorting to delegating the implementation of their investment strategies to third-party experts so they can focus on the more important task of mapping out their long-term investment strategy.
Bayani S Cruz 16 Mar 2017

Extremely volatile and highly uncertain markets have been putting a heavier burden on Asian investment managers, who are now resorting to delegating the implementation of their investment strategies to third-party experts so they can focus on the more important task of mapping out their long-term investment strategy.

“Delegating implementation of their investment strategy is growing because it meets investors’ needs. They need to focus on their strategic decision-making. To do well in the markets in the long-term you have to be able to stomach long-term volatility. To get through that and maintain the course is pretty tough. Delegation solves real governance challenges and helps clients access investment opportunities,” says Rich Nuzum, wealth leader, growth markets at Mercer.

Although Mercer is a consulting firm known for its advisory capabilities in portfolio construction, manager selection, asset allocation, among others, it also has expertise in the implementation of its own advice.

At present the company has US$170 billion under management in portfolios it implements for institutional clients, part of its US$10.2 trillion in total assets under advisement.

“What this business is, is the implementation of our investment advice. [In certain cases] we actually take responsibility for implementing our consulting advice. Now when we go to a client, we can ask how can we help you with your strategic asset allocation? And once that strategic asset allocation is agreed, it needs to be executed,” says Amit Popat, partner and business leader, fiduciary management, growth markets, at Mercer.

In the past, Mercer helped institutional clients with implementation by helping them select fund managers who can execute the strategic asset allocation strategy.

Although Mercer still does fund manager selection for their institutional clients, now it also has the operational infrastructure where it can implement the strategic asset allocation on behalf of the institution.

For example, when an institutional investor wants to build a hedge fund portfolio as part of its strategic asset allocation, it would normally require 10-30 hedge fund managers.

“It is more complex than public markets. If you have a 5-10% allocation and you have one billion dollars, that is 50 million that you have to allocate to hedge funds alone. It is complex to build a diversified portfolio so we have some clients who say to us, help us build it,” says Popat.

To enhance its alternatives investment capability, Mercer has also built a fund-of-hedge-funds (FoHF) portfolio which its clients can invest in. This portfolio is made up of fund managers specifically chosen by Mercer for their capabilities.

For institutional investors, the benefits of delegating implementation of investment strategy to third party experts include being able to go into asset classes they are less familiar with, more diversified portfolios, and lower cost.

Mercer launched its global delegated investment solutions in Asia in July 2016 with an offering in Singapore. The move follows Mercer’s Q4 2015 launch of the business in Japan and provides institutions in Asia greater access to the strategic investment resources of the firm.

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