By Niki Natarajan
The last few years have seen the fox feasting in the hen house.
But, by including the fox - aka the investment consultant - in
latest InvestHedge Billion Dollar Club ranking of
professional hedge fund allocators, we are aiming to highlight
the adaptogenic behaviour of any adviser, either a FoHF or a
consultant, in search of a fee.
Pure consulting businesses do not, never have and never will
pay much - which is why consultants want to offer
fiduciary/commingled services to their clients. This is not
new: Frank Russell went this way many years ago, while EACM
Advisors was once part of the Evaluation Consulting Group.
But to protect their patch, some FoHFs believe they have to
offer their research and other services at a lower fee just to
keep hold of their territory. This is because today, in a
beauty parade for a hedge fund adviser, a pension fund is
likely to have FoHFs competing against the very same
consultants that once hosted these searches.
In a twist of irony, one consultant recently admitted to
being a discretionary player when he complained about having to
show composite returns to the consultant running the search,
despite being rivals for business elsewhere.
It is because of this broad spectrum of grey - which spans
commingled investing, through customised solutions to advisory
services - that we decided to include those consultants that
offer commingled, advisory and fiduciary services to hedge fund
investors in the InvestHedge Billion Dollar Club.
Traditional FoHFs will not necessarily agree with this move.
But at least the fox is under the spotlight. And multi-manager
hedge fund investing has never been entirely black and white,
to be fair; since the inception of our Billion Dollar club in
2002, FoHFs have been reporting an amalgam of commingled and
A year later, when the two sources of assets were collected
as a separate number, it revealed that advisory assets were
7.3% of the total hedge fund assets run by FoHFs. This ratio of
advisory assets compared to total assets in hedge funds doubled
to 15.4% in 2004 and has hovered at the 13% mark until this
Assets under advice have now jumped to 25% of total assets
with the inclusion of Cambridge Associates, Mercer and Towers
Watson. In reality, most consultants manage a spectrum of
assets with relatively little on a commingled basis but the
majority of the assets are advisory. That said, Cambridge
Associates does not offer commingled investing.
In this latest survey, pure commingled investments account
for $397 billion across the 105 firms. But there are 46 firms,
including three consultants, managing $180 billion in advisory
Veterans of the industry will remember that in 2003
Blackstone Alternative Asset Management was advising the
California Public Employees' Retirement System on its direct
allocations for a fee of $5 million per annum (
InvestHedge, October 2003).
When Blackstone gave up the mandate, three new advisers -
Pacific Alternative Asset Management, UBS O'Connor and
Financial Risk Management - were appointed, with the latter
rejecting the mandate on what was believed to be fee grounds
InvestHedge, March 2004).
In the public fund arena, CalPERS was seen as a trailblazer
in terms of hedge fund investing. But today - as InvestHedge
shows month after month - end investors are increasingly buying
hedge funds directly. Their challenge is to choose who to
advise them, and this is the territory that has become the
battle ground between FoHFs - who have done this job
historically - and the consultants, who now believe they are up
As consultants move into the fiduciary game, transparency of
fees is a must. In a white paper entitled Understanding the
fees charged within fiduciary management, Aon Hewitt recently
highlighted the need for transparency in the fees charged by
It believes that fiduciary management fees break down into
four main components: fiduciary management provider fees;
underlying manager fees (including any fee savings on external
managers); investment consultancy fees (if any); and other
fees, such as administration costs, custodian fees, legal
review fees or transition management fees.
Today, an investor can have a simple conflict-free
consulting service from Albourne Partners for $400,000 - or,
like the Royal County of Berkshire Pension Fund, it can select
a seasoned hedge fund multi-manager such as Grosvenor Capital
InvestHedge, November 2013).
The real question today is no longer who will give me the
most for less, but who will really service my needs best?
As this article shows, a headline is not everything. End
investors need to read the full story before they buy an
adviser based on headline fees alone.