Mercer has added almost US$60 billion to its global implemented consulting business after buying the specialist Vanguard US division last week.
Under the deal, Mercer is expected to onboard about US$59 billion and 120 staff from the Vanguard implemented consulting business, a style known as outsourced chief investment officer (OCIO) in the US.
Globally, Mercer looks after almost US$380 billion in multi-manager vehicles.
The Vanguard OCIO is the largest provider in the US foundation and endowment sector, the manager says, with more than 1,000 clients overall. While the Vanguard implemented consulting offer skews to its indexed strategies, the OCIO portfolios also have exposure to alternative assets as favoured by Mercer.
Marc Cordover, Mercer US investments and retirement leader, said in a statement that the Vanguard “differentiated investment philosophy, strength in the not-for-profit sector, and client-centric approach complements our global capabilities across OCIO and managing alternative asset classes”.
Institutional Investor reported the Mercer-Vanguard agreement highlights growing competitive pressures in the OCIO business, which is expected to grow from the US$2.4 trillion recorded at the end of 2021 to US$3 trillion by 2025.
Several new players have entered the US implemented consulting market in recent years to tap into the rising demand, the trade publication says, sparking talk of consolidation.
“There have been fits and starts of dealmaking over the years, but some long-rumored transactions — like TA Associates’ potential sale of Russell Investments — have not come to fruition,” Institutional Investor reported.
Russell is the third-largest OCIO providers in the US behind BlackRock and Mercer, according to advisory firm, Charles Skorina.
Mercer’s Cordover said not-for-profit organisations in particular “face a range of challenges” that “require robust solutions and global expertise to stay ahead of the curve”.
Vanguard told OCIO clients it “did not make this decision lightly”.
“As the OCIO landscape evolves and grows increasingly complex, Mercer’s deep commitment to this space gives us great confidence that it is uniquely well positioned to support our OCIO clients and crew over the long term,” the client note says. “Its reputation, expertise, and culture assure us that this is the right strategic move for Vanguard and, more importantly, our OCIO clients and crew.”
Meanwhile, Vanguard says the institutional arm of the index giant, headed by John James, would “further sharpen its commitment” to the defined contribution retirement fund sector “through exceptional investments, participant advice, and recordkeeping”.
The passive fund pioneer has stepped away from the Australasian institutional mandate market in 2020 to focus on building a retail Australian superannuation scheme and direct-to-consumer platform.
Vanguard sacrificed over $100 billion of institutional mandates in Australia and NZ to ready for the super fund, which went live last November.
At the same time, BlackRock secured a couple of large OCIO-like mandates in NZ, winning both AMP and ASB as clients. The global investment giant is also in the frame to supply implementation services to the $33 billion ANZ funds business with Mercer also lined up as investment adviser, and/or, manager.