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WHITE PAPER Evolving consultant business models and its implications for hedge funds

Consultant business models have been evolving rapidly over the last couple of years. Consultants are offering both discretionary consulting and traditional non-discretionary consulting; services and products; and a variety of options including full range consulting to just alternatives to just hedge funds or just project work. “Consultants are taking their research engine and finding different ways to deliver it,” observes Greg Dowling of Fund Evaluation Group, a Cincinatti-based consultant which focuses on foundations and endowments. Institutional investors are driving some of this change as they are more aware and demand different types of consulting relationships. Many clients may feel they can handle traditional investments on their own and may just want help on the alternative side, says Dowling. Or, after 2008, they may want help on asset allocation or investment policy statements. Some organizations that have limited resources or issues arriving at consensus are becoming more open to outsourcing the actual implementation. Some of the change is also motivated by consulting being a fairly mature business. Consulting firms are looking for new ways to leverage their investments in technology, reporting, risk management and research. As pensions outsource more of their investment decisions, the competition between funds of funds and consultants increase. And the lines are increasingly blurring between consultants and funds of funds as more consultants offer funds of funds and more funds of funds offer advice. Janine Baldridge of Russell Investments says the outsourcing decision is generally based on several criteria: internal versus external investment expertise and resources, ability to access and successfully structure a desired portfolio, and best practice expectations for both investment and operational due diligence processes. “Clients with fewer internal resources or expertise are more likely to outsource hedge fund selection and construction to fund of funds providers and focus on understanding the investment strategies, risks and return expectations. On the other hand, organizations that have experience in selecting and monitoring hedge funds are able to make timely investment decisions. Those that have expertise in structuring multiple hedge funds are more likely to seek advisory services and retain discretion internally,” she adds. Baldrige says it is important for sponsors to seek clarity on their desired level of fiduciary liability, discretionary actions and due diligence capabilities from their hedge fund providers. “The range of capabilities and offerings can be quite different between the two model types. An institution hiring a consultant to help them select and structure individual hedge funds likely has very different expectations than an institution hiring a consultant to recommend discretionary funds of fund managers,” adds Baldridge.
Just released: Evolving Consultant Business Models and the Implications for Hedge Funds/Funds of Funds Includes examination of: How the consultant community is evolving Specialist versus generalist consultants The blurring lines between consultant and funds of funds Potential conflicts of interest Institutions’ current appetite for hedge fund/funds of funds The evolution of institutional investing in hedge funds Table comparing select consultants Order your copy by calling 212-686-6440. 30+ pages including tables and footnotes, $500