Understaffed and Under Pressure

By Ilana Stone

Many executives responsible for investment of their firms’ retirement funds and endowments are finding themselves overwhelmed by their portfolio oversight obligations in addition to their primary roles, according to new research conducted by Bloomberg Audience Insights in March 2014. Some compare their jobs as institutional investment officers to “part-time, unpaid work.” This is why many rely heavily on consultants for a wide range of in-depth services, including tracking fund performance, compliance advice, overall macro-trend briefings, manager research and due diligence.

One CFO, who oversees his firm’s corporate retirement plan, says that–like many in his position-he is severely understaffed, so much so that he barely has time to look for a new investment consultant. “We are essentially looking for someone to continually monitor the performance of all the specifics in the fund, while keeping us updated,” he says.

The consultants he and many others seek provide much more than outsourced assistance; they are really the first lieutenants to the CIO captains. When a CIO brings ideas and recommendations to his or her investment board, he or she needs to confidently present ideas that have been validated by other companies’ real-world case studies and by extensive research. To do so may require expertise and manpower that they may not have in-house.

Investment manager research, however, is not one-size-fits-all. And part of a consultant’s role is to intimately know the client’s specific circumstances, as well as the industry at large. This familiarity is key in helping pension plan managers, who are often so overwhelmed by underfunded–and often frozen–plans that some express a desire to offload their plans just so they can go back to focusing on their main jobs. “Everything is so complicated–so much complexity with the law, and the challenges of accounting,” one CFO says about his corporation’s defined benefit plan. “Most companies are freezing their plans. It has a tough impact on keeping employees.”

This is why Jeff McConnell, director of institutional investments at Graystone Consulting, a business of Morgan Stanley that delivers a complete range of investment consulting services to institutional clients, says that building an investment policy statement together with the client is so crucial. “Both the client and the consultant should be able to point to that document down the road to explain why a certain decision or change was made. The rationale for doing something should tie back to the investment policy statement.” This hands-on approach to building an investment policy can ease the demands on plan fiduciaries and provide confidence that the correct building blocks are already in place.

Yet another complication institutional investors face is the constantly changing and growing regulatory environment. Many plan sponsors avoid certain types of investments that might otherwise fit their portfolio merely because of the burden of compliance and its accompanying workload. But a consultant can handle regulatory requirements to help make sure an investment opportunity is not lost.

“We’re engaging with these asset classes all the time,” McConnell says. “Plan fiduciaries have a lot of other responsibilities on their plate aside from their firm’s plan or fund, so it’s tempting to take things off that plate with hard-and-fast rules. A consultant can bring investment expertise to help plan fiduciaries better understand the overall portfolio ramifications of drawing from a broad opportunity set to potentially include a variety of asset classes in their portfolios.

The Bloomberg Audience Insights survey was commissioned by Graystone Consulting, a business of Morgan Stanley Smith Barney LLC.

Investments and services offered through Morgan Stanley Smith Barney LLC. Member SIPC. Graystone Consulting is a business of Morgan Stanley.

This story contains forward-looking statements and there can be no guarantees that they will come to pass.

In March and April 2014, Bloomberg Audience Insights completed 20 interviews with C-suite executives from organizations with investment plans ranging from $25mm to $1bn of Assets Under Management (AUM). The interviews consisted of in-depth, one-on-one individual telephone discussions. Many of the respondents were sourced from the Bloomberg Insight Exchange, Bloomberg’s proprietary audience panel.