Mercer builds out investment management across Asia

Mercer is moving to expand its investment management business into Asia by establishing sales and client service beachheads in South Korea, Hong Kong, Japan and Singapore this year.

The US-based firm has already built an $18 billion business over the past decade in Australia and New Zealand, primarily driven by defined contribution outsourcing of corporate plans.

Having started life as an advisory-only firm, Mercer has become the largest actuarial and benefits consultant and largest investment consultant in the world by dollars under advice, says Stephen Roberts, Mercer’s Asia-Pacific head of investment management.

It has since expanded into outsourcing and five years ago into investment management, specifically multi-manager investing, rolling out into North America, Europe and Australia and New Zealand.

Now it is seeking to build key beachheads across Asia, putting a country head for investment management in Korea within the next month, in Hong Kong within the next two, in Singapore by the second half of this year and also in Tokyo. They will target large institutional investors.

“We were being invited by our advisory clients here in Asia-Pacific to consider taking discretion over parts of their portfolio, so being invited to manage people’s money is a nice way to start a business,” says Roberts, who joined Mercer in May last year.

“My first order of business was to establish the priority with which we would go to market across Asia-Pacific. We have done that and made some decisions. It is very much a qualitative assessment one makes of these markets. There are opportunities everywhere in Asia-Pacific. It is a very exciting place to be.”

Overall Mercer has budgeted to have eight associates on the ground in Asia by the end of the year. It is adding regional functionality to existing staff roles in its Australia/NZ business, meaning its CIO, operations officer, marketing and web support will adopt an Asia-wide focus.

“We will be adding front-office staff to support our clients as we win mandates, and we have in our business plan for 2012 and 2013 that we will start local investment management multi-manager businesses in Korea and Hong Kong to manage local equities and bonds,” adds Roberts.

Globally Mercer’s assets exceed $40 billion and its expectations are that over the next 18 months to three years its Asia business will have built $2 billion in AUM, or 5% of its global base.

With regard to its Japan plan, the firm is considering a greater commitment of resources in the near term, growing organically by hiring an associate or two and potentially also by acquisition.

“We have become very interested in what is happening in Japan as a consequence of the global trend to de-risk defined benefit schemes in the UK, Ireland, the US and Canada,” says Roberts.

“What we observed in Japan in the second half of 2010 was far greater interest in international subsidiaries in Tokyo, in particular looking at their defined benefit schemes and seeking advice and potential implementation strategies around de-risking of those local schemes.

“The other trend that has fostered is a discussion around outsourced fiduciary management of pension schemes as well.”

He confirms that Mercer has spoken to two organisations with fiduciary management teams sitting outside the major organisations with a view to a potential acquisition, although he declines to identify them at this stage.

Mercer’s global data warehouse contains 3,800 products at present and formally reviews close to 30,000, a figure that is growing every day, says Roberts.

Asked whether Mercer had sufficient resources to cover Asia effectively, Roberts notes that the firm has a total of 24 staff in Australia and New Zealand, with a further 116 resources globally in its investment management business.

It also has 1,000 people in its investment consulting business, of whom 240 people are in the Asia-Pacific region. “So our global resourcing is about 1,200 people in investments,” he says.

“We want to have a credible offering, so we want to leverage where we can our regional and global capabilities and capacity. But we are not shy about adding capacity if we perceive the offer needs further bolstering.”

He says where he is seeing demand from existing clients is in “the alternative beta and alpha spaces”, such things as infrastructure, real estate, commodities, insurance and alternative alpha strategies (i.e. a multi-strategy hedge fund of fund approach).