Of the many forces shaping the future of institutional investment in the US, three stand out: specialisation, transparency and empowerment.

In an increasingly crowded market, new entrants are seeking unserved or underserved niche investment opportunities. This forces established investment managers to engage in product line extensions" to compete against a growing number of "style" specialists. For the pension customer, the US market offers a broad range of style-oriented products, each benchmarked against one or more custom indices. Gone are the days of "equity specialists". Investors have more choices than ever and the trend is not limited to equities.

This explosion of choice has led to the metamorphosis of consultants into asset managers or "manager of managers". Consultants are building portfolios of managers to achieve complex objectives set by their pension clients.

Pressures for increased transparency have been building for years. "Trust me" is no longer acceptable. The magnifying glass aimed at the investment manager is focused on three issues: the manager's decision process, the skills associated with execution, and the origins of performance.

Customers want evidence that a manager's process has consistency and rigour: that it is independent of the individuals involved and stable over time. They also want to know that the process remains true to the reasons the manager was hired in the first place. Managers are responding by blending the advantages of quantitative approaches with established fundamental styles.

The ability to implement investment ideas successfully and capture the "alphas" that those ideas embody is being scrutinised. Firms such as Plexus Group use empirical data to measure the gap between potential and actual performance of a portfolio. Starting with the point at whichan investment opportunity is recognised, they measure the gains and losses in the implementation process.

Performance analysis is rapidly becoming a mainstream requirement. Pension funds demand it, consultants have embraced it, and investment managers don't want to be without it. They need to understand the origins of performance to distinguish between luck and skill. By decomposing performance into its sources, managers and clients can obtain a detailed picture of the outcomes. Managers can use this information both to shape future decisions and to communicate more effectively with clients. Pension funds and their consultants gain additional insight on which to base hiring and firing decisions.

'Empowerment' has been part of the management consultant's vocabulary for most of this decade. However, it is rarely applied to the pension industry. Yet here too the trend toward increased empowerment exists. It takes the form of a declaration of independence on the part of larger pension funds from their consultants. While reliance on the consultant is still common among smaller funds, larger funds are making the move to self-reliance.

Bolstered by the availability of cost-effective technology, funds are taking a greater role in manager selection and oversight. Wide availability of historical returns data on managers, together with the software to search, screen and assess performance, has made in-house analysis attractive. The ability to monitor a manager's investments and performance against a designated benchmark on a timely basis has speeded the process of disintermediation.

Marc Sievers is vice president at Vestek Systems in San Francisco"