Mercer commits to specialist alternatives research

Mercer has carved out the alternatives research for its multi-manager funds management products under a new head, Bill Muysken, who returned to the firm in London last month. Greg Bright reports.

After three years with the Thames River hedge fund group, Bill Muysken has returned to Mercer to fill the new position of chief investment officer for alternative alpha strategies within the investment management arm of the consulting firm.

Until February 2007, as the alternatives boom was nearing its peak, Muysken, a Mercer veteran who started with the firm in 1992, was the London-based global head of research. He surprised the industry when he crossed to the “other side” to become a portfolio manager and risk manager in Thames River’s multi-manager alternatives team.

Thames River is not strictly a hedge fund manager; it has a diversified range of alpha strategies and funds, including some traditional investment types. It has more than 160 staff managing about $12 billion.

Back at Mercer, Muysken says that he is familiar with the firm’s “biases” in its attitude towards alternatives: “We tend to prefer strategies that are transparent and we also have a bias towards strategies with low correlations to equity markets.”

Muysken believes that most hedge funds of fund (FoF) indices have a 50-60 per cent correlation with equities.

“Our clients are looking for genuine diversification and we’re seeking to build portfolios like that… If you look at the hedge funds and (FoFs) that came to grief in 2008 you would have seen their correlations with equities.”

Muysken says that institutional investors tend to fall into one of two groups: those who are prepared to make a long-term commitment and therefore pick up a liquidity premium and those who have an aversion to illiquidity.

“We may look to develop separate products for each group of investors,” he says.

Many pension funds which were prepared to have illiquid assets found themselves during the global financial crisis in commingled vehicles alongside different types of investors with different risk appetites.

This has led to an increase in their scrutiny of funds management products and the increased interest in co-investing or “clubbing” with like-minded investors.

Muysken’s brief for alternatives includes all asset classes and investment types apart from long-only equities and bonds.

“My focus is on alpha strategies but we preach diversification,” he says. “We think that some diversification out of beta strategies is a good thing… If you forget about alpha you have a narrower range of options.”

Muysken does not believe that hedge FoFs will die out, although they have suffered more than traditional multi-manager products subsequent to the global crisis because of lack of transparency and high costs.

“There may be some further consolidation,” he says. “We have a different focus to that of the typical hedge FoF. They are more focused on absolute returns and some pick-up from equity market risk. We’re consciously trying to avoid that.”

Muysken has a team of three in his area but he is able to draw on the 90 researchers in the group overall, of whom 24 are specialists in alternatives. He reports directly to Rich Nuzum, the global head of the Mercer investment management business.

Mercer’s investment management products total about $31 billion, with just over half sourced from Australia and New Zealand. European clients account for $6 billion and North American clients the remaining $8 billion.

The firm has flagged the Asian region for its next stage of growth.