WTW’s head of manager research says scrutiny of culture and compensation is on the rise
Chris Redmond, global head of manager research at WTW, says consultants are taking a granular approach to understanding manager behaviours through a close evaluation of products, going under the hood to understand managers' particular strengths and their investment philosophies (David Davies/PA Wire)
Investment consultants are stepping up scrutiny of manager culture and compensation structures to ensure they reward long-term value creation, says Chris Redmond, global head of manager research at WTW.
Redmond, who leads an international team of around 100 investment consultants researching managers across asset classes such as equity, credit and real assets, places a high degree of importance on the way managers "hire and retain people, [as well as] their culture and their compensation".
This allows his consultancy to have "confidence that the team will still be there... in that medium-term time frame" as they make fund commitments, says Redmond.
Redmond's comments on the importance of fund longevity and the value of strong cultures are shared by many other consultants.
Anthony Ellis, head of defined contribution trust consulting at Hymans Robertson, recently said fund managers are expected to demonstrate whether new products are "up and running" with other clients onboard. When considering new investment funds, he asks: "Is there a longevity [to] it, have you got other clients, co-investors? Is it a valid proposition, or is it [launching on] a wing and a prayer?"
WTW offers counsel on manager allocations to some of the largest UK and European pension schemes, including the $77.8bn National Employment Savings Trust and the $20bn Transport for London Pension Fund, for which it provided advice on awarding three environmental, governance and social-titled mandates in the year running up to the end of March 2025.
Recently WTW served as the investment controller for the $11.8bn Bernische Lehrerversicherungskasse, which last year invested an additional $63mn in Yukon, a real estate mandate set up with UBS Asset Management in 2022, targeting a total volume of $380mn.
Alignment with client needs
According to Redmond, managers must have a "superior appreciation for the bigger picture" of its clients' investment goals. This should not be "overlooked" especially as managers sometimes have "moments of disconnect" with their clients, he says.
Client alignment is "partially [about] performance", but Redmond says the consultancy also seeks to ensure manager cultures have longevity and prioritise longer-term, consistent investment returns.
"It's not just [that] you swing for the fences in one year and you have a good year and that's great, but you might make a mistake next year," he says. "We don't want that — we want cultures that reward long-term wealth appreciation".
One example of client disconnect might be a manager hired to offer downside protection not showing necessary humility in a year where their funds have only marginally outperformed other managers in the marketplace.
“We find that the very best investors tend to congregate towards the mandate that has the greatest number of levers to reflect their [investment] view”
Consultants are also taking a granular approach to understanding manager behaviours through close evaluation of products, going under the hood to understand managers' particular strengths and their investment philosophies.
"We tend to insert ourselves in the product development machine — to say, 'The thing you're really good at is X'," Redmond explains.
"X might be a carve-out of their broader strategy. Perhaps their flagship product is a global equity mandate, but actually we don't think they're particularly good at doing European equities. Maybe they lack expertise in that space. Maybe we have them just run a US mandate."
With many European investors having large portfolio tilts towards US stock markets, there have been conversations around how to reconstitute their global equity exposures, says Redmond. But the consultancy favours global mandates, which he says provide for "the purest access to the equity risk premium".
"Typically, we find that global equity is a good opportunity for alpha generation," he adds. "We find that the very best investors tend to congregate towards the mandate that has the greatest number of levers to reflect their [investment] view."
OCIO mandates
Alongside its work evaluating managers, WTW also runs the $35bn LifeSight master trust, which serves more than 400,000 UK members.
In December last year, WTW agreed to buy NatWest's $5.5bn Cushon Master Trust, feeding a further 700,000-plus customers into the consultancy's master trust portfolio.
The merger follows a significant amount of master trust consolidation activity in the UK pensions landscape, off the back of the pension schemes bill last year and the push to create $34bn-plus "megafunds" in time for 2030.
While the consultancy develops investment strategies for its own master trust, Redmond says a significant proportion of its institutional clients are using at least some degree of an outsourced chief investment officer function. WTW says it now oversees $168bn in outsourced assets across more than 450 OCIO mandates for DC and defined benefit schemes globally.
The UK's fiduciary management and OCIO landscape has grown significantly in recent years. According to ISIO, the proliferation of "multi-billion-pound" OCIO mandates saw asset under management grow more than a fifth (21 per cent) between 2023 and 2024, in spite of some schemes heading into the buyout market.
Such arrangements have enabled some schemes to build more substantial private markets programmes, including exposure across multiple fund vintages to improve diversification.
Redmond says the market is increasingly moving towards "hybrid models" with schemes combining their own internal expertise with consultants' oversight.
Trustees may still be in charge of asset liability modelling and high-level asset allocation, but they delegate specialist areas such as private markets to external managers, he says.