UK – Consultant Watson Wyatt has rolled out a customised investment service for UK pension funds, including manager selection options and performance related fees, which it says it will introduce into European markets where appropriate.

Nick Watts, head of the European investment practice at Watson Wyatt, says the service will provide tailored investment solutions for a number of clients, be it for strategic asset allocation, investment management structure or manager selection.
“ This is a global initiative to respond to client demand, however it is not being rolled out everywhere at the same.
“ At the moment in a European context we are talking about the UK only.
“ I think there have already been some announcements that we will be doing something that is reasonably similar in the US.
“ And then we’ll look at it on a country by country basis for appropriateness. I wouldn’t want to prejudge that.”

Watts says the firm has been evolving the service for over a year and adds that the Myners review confirmed the way in which the company was moving.
He adds that the group no longer believes that the traditional method of paying consultants on a time for work done basis is appropriate.
“ We already have some clients where we are operating on a performance related fee, so this not wholly new but it is unusual within the consulting market.

However, he notes that any new parameters have to be defined carefully: “We are certainly up for being held responsible for our advice, but not for other people’s.
“ For manager search it is fairly straightforward - the fee will be based on manager outperformance of a defined benchmark.
“ More complicated is performance fee for advice that leads to the setting of a strategic asset allocation.
“ That has to not just be looked at in terms of returns, but as a measure of balancing returns and risk.
“ So we will be working with clients to define what their neutral policy may be and how their policy is different from this. Then we will work out a measure - some kind of information ratio on a client-by-client basis.

Watts does not believe this moves Watson into the multi-manager territory:
“ I think Frank Russell would describe themselves in their fund of funds activities as an asset gatherer and they would have the contractual relationships with the investment manager managing the portfolios.
“ Here the contractual relationship stays with the client and we will be giving advice which is formulated into strong recommendations, which we will be held responsible for. “ I see that as different from discretionary asset management.”