Building a new model
How ready is the industry for a ‘new model of consulting’? The new company that will endure the trial is Angeles Investment Advisors, LLC, based in the Los Angeles, California area. It has just bought what remained of InvestorForce.com’s consulting business. “The new firm will offer the full spectrum of traditional investment consulting services, including acting as a fiduciary, but deliver these services in a more time-efficient and cost- effective manner by leveraging InvestorForce’s internet technology platform,” explains Peter Flynn, Europe general manager of InvestorForce.
But the move puzzled many in the industry, because InvestorForce.com was established in February 2000 exactly as the merger between the one-year-old Plan Sponsor Exchange and the Asset Strategy Consultant with 10 years of experience. The latter had around 50 clients among the most prestigious US pension funds, like the $12bn San Francisco City and County Employees’ Retirement System or the $3.6bn San Bernardino County Employees’ Retirement Association. Plan Sponsor Exchange wanted to expand its internet marketplace to allow plan sponsors to do most of their manager searches online.
“The very first goal of the acquisition of Asset Strategy,” points out Lawrence Davanzo, former managing director of Asset Strategy, current executive vice president at InvestorForce.com, “was to take advantage of its huge database about asset managers, which was already online. The second target was Asset Strategy’s intellectual property, the excellent expertise of its people”. Even though 10 people didn’t join the merger and another 10 left in subsequent months, Davanzo underlines that 25 out of the original 45 employees of Asset Strategy are still with InvestorForce.com. “Their contribution to the new initiative has been crucial,” he adds. Three of them now have become the owners and principals of the new Angeles Investment Advisors: Leslie Kautz, Howard Perlow and Michael Rosen.
In one year, Investorforce.com’s philosophy has become clearer: “We define ourselves as a technology platform, which aggregates data at a speed and level of transparency previously unknown in this business. But we don’t give advice and we don’t act as a fiduciary trust. Consultants are still needed to interpret the data and suggest the right strategy,” explained James Morrissey, InvestorForce’s president and chief executive, in a recent interview (IPE, February 2001).
The most successful InvestorForce service is the ‘manager search’ tool, with 4,000 investment products on display, offered by some 1,400 managers. According to the company releases, in recent months InvestorForce has successfully facilitated 17 money manager searches representing more than $1.2bn in assets; has initiated 25 money manager “searches-in-process” through the site, valued at $5.5bn; and in the pipeline are another 100 searches for more than $10bn.
However, back in February 2000 the original project looked more willing to establish the ‘new model of consulting’ inside InvestorForce.com. “Asset Strategy’s 10 years’ experience serving the needs of institutional investors will be leveraged to drive the development of content-rich features for plan sponsors and consultants,” declared InvestorForce’s chairman Frank Minard one year ago. Among the characteristics of the ‘new model’ were the elimination of in-person visits as a basic part of the service, with all the consultancy business and clients handled online, with the possibility of arranging ‘virtual meetings’ on the web; a base fee of only $25,000– 50,000, 75% below the market average; and free access – for the plan sponsors and the advisers – to the database.
On the other hand, asset managers that wanted to be included in the database had to agree to pay 5% of their first-year revenues to InvestorForce.com, if they were selected for a mandate.
The new formula raised many concerns among the old Asset Strategy’s clients. The biggest concern was about the potential conflict of interests generated by the fees paid by managers: would the new firm’s consultants recommend terminating an investment manager who was paying the 5% fee to InvestorForce.com? Or would they recommend hiring a very good manager who hadn’t agreed to pay those fees? One by one most of Asset Strategy’s clients left InvestorForce.com, while the latter stopped taking new consulting clients.
Now the potential conflict of interests should be completely avoided, seeing that Investorforce.com and Angeles Investment Advisors are two independent companies.
According to Davanzo, InvestorForce.com’s database is appealing to all advisers and plan sponsors, because it includes 96% of global institutional assets, with all the big players represented, from Fidelity to Goldman Sachs to Credit Suisse and so on.
“Pension funds and their consultants can avoid the ‘commodity’ work of a manager search, by using our database,” says Davanzo. “The investment managers can use it as a powerful marketing tool. Even big firms don’t have enough salesmen to reach all the medium-small pension plans scattered around.”
A big pension fund that supports InvestorForce.com’s vision is Calpers, which – together with a private equity fund – last September invested $25m in the company and last December decided to use InvestorForce.com’s database of hedge funds to find a strategic investment partner for its own hedge fund programme.