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Special Report

ESG: The metrics jigsaw


Building a global investment consulting practice

A crucial aspect of the deal that brought human resources outsourcing and consultancy group Hewitt Associates and UK-based actuaries Bacon & Woodrow together was the desire to create a global investment consultancy business.
“The agreement was that Hewitt would back the development of investment consultancy on a global basis,” says Nick Fitzpatrick, who is responsible for building up the investment practice from the London base of the new grouping.
But the investment practice move has to be seen in the wider context, which prompted B&W to make the initial approach to Hewitt some three years ago. “At B&W, we felt we had reached the point where we needed to be part of a global business for both our pensions and consulting business. And when we made the move, we found that indeed we were a good fit with Hewitt.”
Fitzpatrick puts the situation starkly: “The choice before B&W was to become a niche player or to become a global player. We did not see that we would be able to attract the right calibre of people we needed to succeed if we went the niche route.”
One immediate consequence was untangling the relationship the UK firm had with another US consultant Callan Associates of five years’ standing. “There was nothing wrong with that connection, we liked the people, the quality of the work they did and they seemed to enjoy working with us. It was a great shame we had to say to them that the best way forward for B&W was to tie up on a broader front with Hewitt.” As Hewitt had its own investment consultancy in the US, there was not an obvious place for the Callan relationship in the new set-up.
Hewitt is 14,000 strong and is now a formidable force that can challenge the other giants of the consulting industry. On the investment side the numbers total 250.
Hewitt’s US investment practice is smaller than Callan’s, but it has operations in Canada and a stake in the Ppc metrics business in Switzerland, as well its developed range of benefit operations in many countries. “But in no way could that be regarded as a global consulting business,” observes Fitzpatrick. Similarly, B&W had it major strength on the investment side in the UK, with a presence in some other markets.
Even before the knot was formally tied last year, Fitzpatrick and his team in London swung into action and started putting flags onto the continental European map. First a lightning raid in Sweden, bagged a major co-operation agreement with one of Scandinavia’s best-placed consultancies, the Wassum firm in Stockholm. “We have a strong alliance there, sharing ideas, marketing initiatives, and information.” Then 100% of Finance Arbitrage in Paris was acquired. This Fitzpatrick characterises as “a small but rapidly growing investment consultancy in what is a rapidly developing French market”. In an increasingly active European scene, he sees France as the most lively.
A strong strategic move was completing the integration of Heijnis en Koelman into Hewitt’s business in the Netherlands, which must have come with a real sense of relief, as growing a greenfield operation in one of the most developed asset consulting markets would have been no picnic. In Ireland, David Hager is building the investment business out of Hewitt’s Dublin office, which is absorbing the business of Delaney Bacon & Woodrow, the former outpost there. And in Northern Ireland, the Kerr Henderson activities are being restructured.

Fitzpatrick is circumspect about German developments, partly because he is unsure of how real the development is there on the pensions asset side, but he points to the fact that Hewitt already has a 100-strong office in the market.
The agenda for the investment operations is clear. “It is essential that each investment practice grows its own business and is seen as being a standalone business, with its own profit stream – it is not possible for them to rely on the crumbs off the rich man’s table.”
So far, Europe has been his key area of focus: “It is the most interesting area for business at the moment. The picture there is now looking a lot better from our perspective than it did 12 months ago. But the obvious solutions of buying or growing our own business may not be so easy in future.”
The Far East he regards as another major challenge, where there has been some activity under the stewardship of Stuart Leckie in Hewitt’s Hong Kong office. “But there are constraints of what is doable in terms of logistics.” He points to the simple problem of having to consult in local languages, so databases have to be translated. “That’s a very real challenge with a very technical subject matter.”
Fitzpatrick’s vision is to the point – the firm needs a strong investment practice to service its multinational clients. The days of parachuting an Anglo warrior into France or wherever are over. “What we are constructing is an array of strong local players, who understand the local market, have a reputation there, and are staffed by locals, speaking the language. This will make it easy for the local operations of a multinational to have them as their consultants.” As he puts it: “It is the strength of our local legs that will give us access to multinationals’ business.”
Another strength he points to is having the ability to do global asset liability matching. “We have spent a long time in developing a model that can do this, by having a consistent set assumptions running through the whole model, ensuring that everything, for example, looks the same in Spain as in Sweden. Our model can provide this.”
The investment side inevitably will work closely with the actuarial side, as a good understanding of clients’ pension liability structures ensures a holistic approach to solving their problems. “The risk to a plan sponsor is a combination of the liabilities and how the assets are managed. You cannot divorce the two. We want the sponsors to understand the risks they are taking so they can take appropriate decisions.”
The overall aim is to be the provider of choice for big, international organisations. “We are this for other of our services and we want this to be so for investment consultancy. Clients need to have a clear concept as to how their investments are performing in their plans around the world, with a view to being able to co-ordinate them. This information has to be provided to the centre, but at the same time it needs players who are regarded as strong locally to do that effectively.”
What has been put in place so far, takes the group down this path, Fitzpatrick maintains. “It’s a matter of going global through being local.”

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