Key Takeaways
- • Institutional investors controlling roughly $70 trillion rely heavily on investment consultants such as Mercer, Aon, Cambridge Associates, and Callan, which can earn hundreds of thousands to millions of dollars annually from their largest clients for hire, fire, and watch-list advice.
- • Most consultants and investors have done nothing when managers face controversy, often waiting for litigation or investigations to conclude, though some are beginning to act on diversity and conduct issues.
- • Meketa Investment Group and NEPC are cited as the consultants most willing to take action on social issues, placing Fisher Investments and Pimco on watch lists after controversies.
- • Pimco, facing a lawsuit from five current and former female employees, and BlackRock, facing harassment allegations, have not been dropped by most clients, while private-equity investors like those in Apollo and Vista Equity Partners have largely stayed put.
- • Investor and consultant inaction is driven by switching costs, illiquidity of private-equity commitments, and concern about management distraction, with the Ninety One consultant-relations head arguing that investors now demand substance over aspirational diversity themes.
Summary
Institutional investors, which collectively control some $70 trillion in investable assets on behalf of pensions, endowments, charities, and hospitals, often turn to investment consultants when a fund manager becomes embroiled in controversy. According to the article, consultants including Mercer, Aon, Cambridge Associates, and Callan charge fees that can reach millions of dollars annually from their largest clients. Understaffed public pensions in particular rely on these firms for asset-allocation advice, performance and fee scrutiny, and manager hiring and firing decisions.
The article notes that investors have faced a series of due-diligence challenges, including discrimination and harassment allegations at prominent managers, a college-admissions scandal involving finance executives, a private-equity founder's tax-evasion case, and a founder's resignation tied to financial ties with Jeffrey Epstein. Industry watchers cited by Business Insider say that more often than not, investors do nothing. Reasons include waiting for legal outcomes, the cost of replacing a manager, lock-up periods, and reluctance to drop a manager producing strong returns. Some foundation treasurers in California have, however, urged peers to fire resistant advisors, citing a Stanford Social Innovation Review article by Tracy Gray and Emilie Cortes.
Meketa Investment Group and NEPC are described as among the few consultants acting on social issues. After Ken Fisher's sexist remarks at an October 2019 conference, Meketa placed Fisher Investments on watch for a public-pension client before later removing it, and NEPC recommended that clients terminate the manager, according to CNBC. Bloomberg Businessweek reported that clients pulled a combined $4 billion in the following month, and Fisher Investments said its assets have grown 60% since to $178 billion. NEPC formed an "unfavorable-news committee" in 2018, and Meketa launched a diversity and inclusion rating initiative in January 2021.
Both consultants recommended watch-list placements for Pimco after harassment and discrimination claims surfaced. Pimco, with $2.2 trillion in assets, has denied claims from five current and former female employees and faces prior suits, including one by Stacy Schaus that was settled and another filed in 2019 by in-house lawyer Andrea Martin Inokon. BlackRock, with $9 trillion, faces accusations from former employees, including a Medium post by Essma Bengabsia. Pimco and BlackRock declined to comment. The San Joaquin County Employees' Retirement Association placed Pimco on watch in March based on Meketa's advice.
Investors interviewed by Business Insider said they understand reluctance to act on unproven allegations. One public fund official said the pension is monitoring but has taken no action, while a Pimco client placed the firm on watch for at least two years after Bill Gross's 2014 departure. In private equity, investors in Apollo Global Management and Vista Equity Partners have largely stayed put. Apollo disclosed that Leon Black paid Epstein $158 million for financial advice, and Black stepped down as CEO in March. The New Mexico Educational Retirement Board reversed a planned $100 million Vista investment after founder Robert Smith's tax-evasion matter, a decision involving NEPC's due diligence.
Jack Coan, head of consultant relations for North America at Ninety One, said in an email that attention to diversity, inclusion, and equity has increased, particularly from public funds and consultants, and that investors now demand transparency rather than aspirational themes.
The article notes that investors have faced a series of due-diligence challenges, including discrimination and harassment allegations at prominent managers, a college-admissions scandal involving finance executives, a private-equity founder's tax-evasion case, and a founder's resignation tied to financial ties with Jeffrey Epstein. Industry watchers cited by Business Insider say that more often than not, investors do nothing. Reasons include waiting for legal outcomes, the cost of replacing a manager, lock-up periods, and reluctance to drop a manager producing strong returns. Some foundation treasurers in California have, however, urged peers to fire resistant advisors, citing a Stanford Social Innovation Review article by Tracy Gray and Emilie Cortes.
Meketa Investment Group and NEPC are described as among the few consultants acting on social issues. After Ken Fisher's sexist remarks at an October 2019 conference, Meketa placed Fisher Investments on watch for a public-pension client before later removing it, and NEPC recommended that clients terminate the manager, according to CNBC. Bloomberg Businessweek reported that clients pulled a combined $4 billion in the following month, and Fisher Investments said its assets have grown 60% since to $178 billion. NEPC formed an "unfavorable-news committee" in 2018, and Meketa launched a diversity and inclusion rating initiative in January 2021.
Both consultants recommended watch-list placements for Pimco after harassment and discrimination claims surfaced. Pimco, with $2.2 trillion in assets, has denied claims from five current and former female employees and faces prior suits, including one by Stacy Schaus that was settled and another filed in 2019 by in-house lawyer Andrea Martin Inokon. BlackRock, with $9 trillion, faces accusations from former employees, including a Medium post by Essma Bengabsia. Pimco and BlackRock declined to comment. The San Joaquin County Employees' Retirement Association placed Pimco on watch in March based on Meketa's advice.
Investors interviewed by Business Insider said they understand reluctance to act on unproven allegations. One public fund official said the pension is monitoring but has taken no action, while a Pimco client placed the firm on watch for at least two years after Bill Gross's 2014 departure. In private equity, investors in Apollo Global Management and Vista Equity Partners have largely stayed put. Apollo disclosed that Leon Black paid Epstein $158 million for financial advice, and Black stepped down as CEO in March. The New Mexico Educational Retirement Board reversed a planned $100 million Vista investment after founder Robert Smith's tax-evasion matter, a decision involving NEPC's due diligence.
Jack Coan, head of consultant relations for North America at Ninety One, said in an email that attention to diversity, inclusion, and equity has increased, particularly from public funds and consultants, and that investors now demand transparency rather than aspirational themes.
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