An Increasing Number of Smaller U.S.-Based Institutional Asset Owners Are Set to Use Investment Consultants

October 7, 2022 — London

Complexity of creating bespoke portfolios is driving the move

An increasing number of smaller U.S.-based asset owners—those managing less than US$1 billion in assets—are set to start using investment consultants, according to the latest issue of The Cerulli Edge―Global Edition.

In the face of greater market complexities, institutional managers acting alone are finding it difficult to manage and grow a portfolio that meets a client’s specific investment needs. Investment consultants can provide key management advice and risk-related assessment during periods of volatility.

Asset owners are most likely to look to investment consultants to oversee asset allocation (77%), assess portfolio risks (67%), evaluate portfolio holdings (69%), and review capital markets expectations (68%). “Investment consultants have considerable influence over asset managers, given that a high percentage of overall institutional assets under management are intermediated by the consultants,” says Laura Levesque, associate director.

Since the 2008 global financial crisis, public markets have been relatively stable but lower yielding. In search of higher returns, portfolio managers are making larger allocations to alternative asset classes, particularly private investment vehicles. However, the manager research and due diligence processes required for private investments are likely to be the capabilities of an in-house investment team acting on their own. Accordingly, many asset owners are turning to investment consultants.

Another area of complexity for asset owners is how they choose to incorporate environmental, social, and governance (ESG) principles into their portfolios. According to the research, most investment consultants incorporate ESG principles into their due diligence process and help asset owners better define their ESG goals and philosophy.

Furthermore, the current market volatility resulting from the coronavirus pandemic, the supply-chain challenges caused by Russia’s invasion of Ukraine, and higher-than-expected inflation will require significant changes to the way asset owners’ portfolios have been managed over the past 10 to 15 years.

“Cerulli believes more asset owners are looking to investment consultants to help with several investment-related challenges they face in current market conditions. Even smaller clients that typically did not use consulting services are likely to see value in their expertise as the markets and the investment landscape grows more complex,” says Levesque.

Other Findings:

  • Some 44% of the exchange-traded fund issuers operating in Europe have direct indexing capabilities internally, and a further 5.6% plan to develop such capabilities. In Europe, ESG-based investing—and its incorporation in portfolios—is a key driver of the take-up of direct indexing, whereas in the U.S., the ability to harvest tax losses is the primary factor.
  • Australia, Singapore, and Japan all face a decumulation challenge. For financial services professionals, the amount of work that needs to be done in product development in the private asset space provides growth opportunities.

Looking for More Information?

Let's Connect

Looking for More Information?

For additional information regarding this material or to get in touch with our press team, please submit the below form.

Note to editors

These findings and more are from The Cerulli Edge―Global Edition, October 2022 Issue.

We use cookies to improve your site experience, distinguish you from other users and support the marketing of our services. These cookies may store your personal information. By continuing to use our website, you agree to the storing of cookies on your device. For more information, please visit our Privacy Notice.