Richard Nuzum's wealth of experience in Asia serves Mercer Investment Consulting well in his current role as business leader for the Americas, helping the firm expand its pension advising business.
Mercer Investment Consulting had nary a toe-hold in Asia when the company hired Richard L. Nuzum out of the University of Tokyo in 1991 as part of its effort to build a presence in the region. Following a stint learning the ropes at Mercer's Chicago office, he returned to Tokyo in 1995, at the age of 27, to lead Mercer Investment Consulting's operations in Asia. After nine years — during which he landed the company's first clients in countries such as South Korea, Taiwan, China and Thailand — Mr. Nuzum became Mercer Investment Consulting's business leader for the Americas practice in New York. The global experience has done both him and Mercer good, Mr. Nuzum says, noting that lessons learned abroad have often helped the company stay ahead of the curve in the U.S. market. With industry-leading research on money managers and parent company Marsh & McLennan's imminent sale of Putnam Investments poised to remove one of the final "conflicts" the firm had to discuss with potential clients in past years, Mercer Investment Consulting is well placed to take on all comers in the fight to advise clients on both their defined benefit and defined contribution plans, he says.
Has your experience in Tokyo and Singapore proved useful here? There's a tendency to think U.S., world-ex-U.S., because that's the way we classify asset classes. But when you think about innovations in investment theory and practice, it's really the U.S. and 44 other countries where we have clients. Portable alpha, liability-driven investment, currency overlay — we were doing that years before they became topical in the U.S. Infrastructure investing is another example. Over and over we've been able to glean lessons from these 44 laboratories that can be applied to the U.S. — and vice versa.
What lessons did the Asian financial crisis of 1997 and 1998 yield? The crisis taught us not to trust market efficiency on overall market valuations, on the beta side. When we hit the (U.S.) technology bubble a few years later, we were much more aggressive in trying to keep clients from doing things like (putting money into tech funds) — we just couldn't stomach the valuations, and thought it was another bubble. We were too early on that call.
Did clients listen? At least one client fired us. The vast majority took the advice and benefited from it. We've become pretty aggressive about looking for that kind of overshoot, and trying to have our clients consider getting out of the way of that. That, if we're honest with ourselves, is market timing over the medium term to avoid risk of getting in at what turns out to be exactly wrong time. Certainly, we're anti-fad.
How much of a competitive advantage is Mercer's global reach? If a competitor gave me seven years and $100 million to build an Asian investment consulting business, I'm not sure I could do it today, with most large institutions (already) having an investment consultant on retainer. We were late, but there was such massive expansion in demand (and) I got very lucky in initial hires. They took the ball and ran with it, winning things nobody had ever done before in Asia, like central bank work.
Did you pick off people from competitors? In the rest of the world we tend to lose experienced staff to the investment management community. In Asia, we were poaching from investment managers. I couldn't hire from a competitor. They just didn't have that many people.
I thought the basic dilemma for consultants was that you couldn't keep up with money managers salarywise. (At least where field consultants are concerned,) I've always thought that story was flawed. The people we're worried about retaining — the ones that like working with clients on customizing investment programs to meet their individual objectives — we can be competitive on compensation if we make sure we're working with clients who value what we do and will pay a reasonable fee for it. Fees in the industry continue to come up, because clients are starting to recognize that a consultant who can help them beat their benchmark by a percent is worth a lot more than a consultant who can't.
For, say, a new retainer client with $1 billion in assets, how do fees today compare with three to five years ago? We'd be asking for double the fee today that we would have been able to get five to seven years ago. Today we have 10 years (of) history on (our) manager recommendations, five years or more history of how our clients have performed against their composite benchmarks. We're able to give clients proof that we've added value in the past. On a billion-dollar fund, an extra percentage point of return is worth $10 million a year. Today that client will say ‘I'm not going to balk at paying $900,000 when their competitor wanted to charge $450,000.' Five to seven years ago, they would have said ‘this isn't a serious fee quote.'
On the research side, you've lost key people recently — including John Frede, your head of U.S. manager research, and Bill Muysken, your head of global manager research — to hedge fund-of-funds operations. That's not something we would have wanted. We worry a lot about our turnover, but when you lose people who averaged more than 10 years with you, who clearly wanted to take the opportunity to do something else at the next stage of their careers — it's not like we're losing them to a direct competitor. Manager research at Mercer is its own dedicated career track. If working here gives people attractive career opportunities, that helps us attract talent. ... In our research group, average years with the firm have continued to go up. Still, we can't be sanguine about it.
Have you begun taking discretionary control of clients' portfolios, in return for a more lucrative basis-point fee? We're starting to see that. It's not a big part of the industry yet, but it's a good thing for the consulting industry to be accountable for results.
Was 2006 a good year for Mercer? We had really good growth. The number of our retainer clients in the U.S. went up 10%.
How about assets under advisement? They went up hugely. Part of that is a strategic decision: We want to be the pre-eminent player at the large end of the market. In part that (increase) reflects Mercer's decision to give big clients, with maybe half a dozen in-house professionals, direct access to Mercer's global research.
If the switch from defined benefit plans to defined contribution becomes an avalanche, will Mercer suffer? Mercer does very well in a 100% DC environment. (With) the resources to cover all the funds in depth, we have a competitive advantage there.
Has the creation of a manager-of-managers subsidiary by your parent, Mercer Human Resource Consulting, proved a distraction? No, partly because we took a hawkish stance and made it a completely separate line of business — no employees in common. They get our advice, our manager recommendations, at the same time as our other clients. We advise more than a dozen organizations on fund-of-funds programs. It's a significant client base for us — a fast growing business segment. But they're just another client.
How would a sale of Putnam Investments by your mutual parent, Marsh & McLennan, affect Mercer? The fact that Putnam is in the family is a conflict that has cost us business over the years. We can't recommend Putnam to our ERISA clients, even where that firm offers competitive strategies. It hasn't been good for us, our clients or Putnam, so having that sale go through, we'll celebrate on the investment consulting side. I'm sure Putnam will celebrate. I hope it goes through.
