05.28.2014
By Terry Flanagan

Investment Consultants Favored by Taft-Hartley Plans

Many corporate and public pension plans tap into consultant expertise, but multi-employer benefit plans are even more reliant on third parties for help with investment decisions.

“In our world, 100% of our assets are handled externally, meaning an investment consultant works with us to hire outside investment managers,” said Chris Brockmeyer, director of employee benefit plans at the Broadway League. “We hire and fire those managers but we don’t have — in fact you will find this in most of the Taft-Hartley World — any in-house investment consultants. There are some larger plans that do in the Taft-Hartley World, but for the most part we are almost entirely reliant upon our external investment consultants.”

The Broadway League is the national trade association for the Broadway industry. Its 700-plus members include theater owners and operators, producers, presenters, and general managers in North American cities, as well as suppliers of goods and services to the commercial theater industry.

Its eleven pension plans are Taft-Hartley multi-employer plans, whose funding status and investment objectives tend to vary.

“Last year, I had one plan return just under 10%, while I had another plan that returned in excess of 18%,” said Brockmeyer. “The plan that returned just under 10%, there were reasons for it. We made a pretty significant allocation to private markets where we didn’t have any before, so obviously because of the J-curve, you don’t really have any real return coming in from those significant investments.”

According to research from global analytics firm Cerulli Associates, 53% of asset managers polled plan on placing even greater emphasis on fostering consultant relationships.

“Investment consultants are highly influential in the institutional market,” said Michele Guiditta, associate director at Cerulli. “Consultant-intermediated business accounted for just under 60% of asset flows in 2012, according to asset managers polled by Cerulli.”

However, getting the attention of investment consultants is challenging. Cerulli found that, on average, institutional asset managers employ roughly three consultant relations professionals and an additional two consultant database analysts.

“Given the powerful impact of investment consultants on institutional sales, it’s not surprising asset managers are focusing more on further developing these relationships,” Guiditta said. “Firms are devoting significant resources to these efforts and plan on continuing to do so.”

Brockmeyer is not displeased with any of the investment returns on the funds. It is the ones that don’t have a good reason for having underperformed the custom benchmark that he is most concerned about. “On balance, when you look at three and five year records, I’d say there is no plan that has what seem to be systemic issues, meaning underperformance of benchmark with no other explanation other than we picked poor managers, and fortunately we have not had a whole lot of that.”

Brockmeyer and his team are focused more on private markets these days. On two funds– one plan that’s $1.8 billion and another plan that’s $1.5 billion- they have made some fairly substantial commitments to private equity through a fund of funds manager.

“We don’t do direct investments in private equity or for that matter hedge funds,” Brockmeyer said. “We exclusively use fund of funds for due diligence purposes. We are trying to manage risk. So, in these two larger funds we made substantial – between 20% and 25% – commitments to private equity.”

The Taft-Hartley arena tends to have smaller-size assets than public funds. “On the smaller funds it’s a lot more difficult to get access to private markets, so one of the things I am working on as an investment consultant is to try to find good ways to access opportunities to get private market access,” said Brockmeyer. “It’s really difficult to do, when you want to dedicate 5% of $100 million, and you don’t really get a lot of private market managers that are interested in $5 million.”

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