One Main Street, Cambridge, Massachusetts 021421524

1
Institutional Investor Institute Consultants
Roundtable
Trends in Investment Consulting
October 20, 2003
Michael P. Manning, CFA Senior Partner Chief
Operating Officer
One Main Street, Cambridge, Massachusetts
02142-1524 [phone] F (617)
374-1313 www.nepc.com
2
Changing Industry Dynamics

• Increased demand for consulting services
• 3-year bear market
• Size style extremes
• Need for more complex strategies to meet goals
• Increased funding/spending problems
• Headlines focusing spotlight on consultants
• Enron, Andersen, Tyco
• Eliot Spitzer
• Corporate governance
• Hedge fund blowups

3
Critical Success Factors

• Capability
• Accountability
• Transparency
• Stability
• Profitability

4
Capability

• Interplay between assets and liabilities
• Innovative investment strategies
• Manager knowledge and due diligence
• Customized delivery
• Specialist versus generalist
• Advisor versus facilitator

5
Accountability

• Informed investment opinions
• Accept fiduciary role
• Client manager performance
• Active versus Passive Consulting
• Who gets the blame?
• Who gets the credit?

6
Transparency

• Conflicts of interest
• Sources of revenue
• Brokerage commissions
• Money manager consulting - pay to play?
• Funds-of-funds or asset management
• Client fees
• Organizational issues
• Employee turnover
• Ownership structure
• Compensation structure

7
Stability.

• .in the Client Base
• Manage revenue more effectively
• Spend time on clients, not prospects
• Invest in corporate/research infrastructure
• .in the Organization
• Maintain knowledge base
• Focus on clients not internal issues
• Structure organization to meet new challenges

8
Profitability

• Need to compete for investment talent
• Need to provide long-term incentives
• Need to build additional capabilities
• Business model questions
• Will the marketplace pay for purity?
• Can industry live without the manager/commission
  subsidies?
• Will the marketplace pay for additional
  capabilities?
• Is taking a view worth the downside risk?
• What can be leveraged?

9
Conclusions

• Great time to be a consultant
• Industry facing choices
• Conflicts or not?
• Advisor or facilitator?
• Source of growth?
• Ownership model?
• Specialist or generalist?
• Ultimately, the marketplace will decide