Mercer, Callan courtship augurs more engagements

The recent alliance between Mercer Investment Consulting and Callan Associates to acquire the bulk of Evaluation Associates – the investment consulting arm of Milliman Inc – could be the start of a cooperation that targets other potentially attractive acquisitions in the US industry.

The US consulting industry has seen several high-profile mergers in recent years and a wave of further industry consolidation is expected.

This latest deal continues the close relationship between Mercer and Callan in the wake of their failed merger deal in early 2009.

As part of the deal, Callan Associates would acquire 10 public defined-benefit clients from Evaluation Associates.

The total value of the assets under management from these public sector clients was not disclosed, but Evaluation Associates has $200 billion of assets under advisement.

This is the biggest co-operation between the Mercer and Callan since their failed 2009 courtship.

There has been speculation this could be a taste of things to come, with the two consulting giants potentially co-operating to target further attractive acquisitions in the US consultation market.

Mercer announced in October last year it would quit the US public fund arena, and this could allow both Mercer and Callan to each carve out distinct areas of any potential acquisition’s client base.

“By co-operating on this transaction, Mercer and Callan are able to pursue their separate, strategic goals in the investment consulting market,” a Mercer spokesperson said.

The consolidation in the US industry has been driven not only by the usual merger and acquisition considerations but also by the changing nature of investment consultancy.

Investors are increasingly demanding a better alignment between liabilities and asset management and more skills in alternative investments – something many boutique firms may struggle to provide.

A watershed in this change came last year when Hewitt Associates snapped up Chicago-based Ennis Knupp in a deal that made them one of the biggest investment consultancies in the world.

The deal combined Hewitt’s actuarial business and extensive skills managing pension risk with the investment management talents at Ennis Knupp, allowing it to provide advice that could provide expertise on both sides of a fund’s balance sheet.

Mercer also moved to take advantage of this investor demand for deeper resources and knowledge when it bought St Louis-based Hammond Associates in January.

Not only did it give Mercer a foothold in the endowment, foundation and wealth management segments of the US market, but it also provided another attractive area of specialisation to potential clients.

This latest deal further bolsters some of the benefits of the Hammond acquisition.

Evaluation Associates said that half of its 155 clients consisted of a variety of non-profits, including education endowments, private foundations and religious organisations. Ten of its clients are from the public sector.

Evaluation Associates also has 50 defined-benefit plans under advisement and 457 of the defined-contribution plans it managed were with government entities.

Mercer’s US investment consulting leader, Jeff Schutes (pictured), has hinted at further acquisition targets in interviews following the announcement of this latest deal.

“This acquisition, along with our acquisition of Hammond Associates earlier this year, underscores Mercer’s commitment to our investment business and our determination to increase our US market share,” Schutes said.

In subsequent interviews he has flagged a 20 to 25 per cent US market share as an aim and has said Mercer plans to put “space between us and the second (biggest) player”.

Neither Mercer nor Callan would detail how much of the Evaluation Associates assets under management they would be respectively taking over.

Mercer said it has more than $3.7 trillion under management, putting in the top tier of investment consultants.

The various strands of the Evaluation Associates deal are expected to be closed by June 30.