Mercer Sentinel is a dedicated specialist team within Mercer Investments focused on advising on operational efficiency; that is, all the non-investment risks associated with investment operations and execution. We help our clients reduce risk and potentially improve returns through better control and management of the activities associated with holding, trading, and servicing investment portfolios. Our approach provides a combination of extensive practical and operational experience, a deep resource base, proprietary database of industry best practices as well as analytical tools. Our team consists of more than 50 professionals located in North America, Europe, and Asia Pacific.
Mercer Sentinel is a recognised industry leader with respect to consulting on custody, middle office, investment operations and transaction-based activities, including execution quality, operational risk management, and governance.
- Custody and investment administration consulting including custodian fee and capabilities benchmarking and securities lending.
- Operations risk consulting including investment manager operational due diligence.
- Transaction/execution cost and efficiency consulting including investment manager transitions support and FX execution efficiency assessment.
Foreign Exchange (FX)
Foreign currency trades are required in order to invest in foreign markets, repatriate income and manage currency exposures. A significant number of foreign exchange (FX) transactions are automatically traded without reference to competitive rates. The level of the spread charged to investor's can vary enormously if not closely monitored, resulting in excess costs being incurred, ultimately eroding the value of their assets.
Mercer has been providing FX transaction cost monitoring for clients for many years and has observed consistently strong performance once a good monitoring process is established. Monitoring ongoing performance not only facilitates good governance; it supports a constructive dialogue with service providers, which should in turn lead to better execution and lower costs. Key benefits include greater transparency (leading to enhanced governance), improved execution, lower costs and increased portfolio value.
A custodian can be an invaluable partner in prudently managing, administering and overseeing institutional investments. Additionally, safe and sound investment administration and internal controls are cornerstones for virtually every investment arrangement. We have one of the most comprehensive evaluation processes in the industry, combining our proprietary best practice benchmarking with onsite research and due diligence. Our process is thorough and transparent, ensuring objective and consistent comparative evaluations and monitoring. We help clients with a wide range of custody-related projects, from selecting new custodians to structuring new investment administration arrangements (for example, unbundled defined contribution plan operations) to simply assessing value for money.
Mercer Sentinel’s custody and investment administration consulting services include the full range of custodian searches, domestic and global; fee benchmarking; multi-country asset pooling solutions; middle and back office outsourcing; structuring investment administration arrangements and internal control frameworks; custodian change assistance; and performance monitoring.
Mercer Sentinel can assess an investment manager’s operations and implementation risk profiles to deliver a risk assessment that:
- Builds general firm knowledge and develop an overall understanding of its operating model before going on-site.
- Verifies and validates preliminary analysis with direct observations during onsite due diligence.
- Documents onsite observations in accordance with stated policies and safe and sound practice expectations.
- Establishes priorities for review and follow-up analysis.
In conducting this analysis, our primary focus is to distinguish well-managed operations and control environments from those that potentially expose clients to increased and often unnecessary risks and costs. Our approach benchmarks each investment manager against safe and sound practices, expressly considering increased risks and challenges associated with the investment mandate, firm size and significant third-party or outsourced relationships, along with the mitigating or compensating controls that a firm may have to manage potential issues.
Transitions represent potentially significant risks and material costs. Regardless of how simple they seem, each transition presents unique challenges and complexities; therefore, oversight requires considerable experience and knowledge. Mercer Sentinel has market-leading solutions to assist and advise clients on all transition aspects. We focus on identifying, analyzing and controlling risks and costs. Using our extensive global experience with trading, transition controls and capital market operations, we help clients address potential issues and complications prior to moving assets. We have developed unique and sophisticated methodologies to promote transparent cost and risk discovery.
Mercer Sentinel adds value in transactions through:
- Structured evaluation framework, implemented by experienced professionals
- Deep knowledge base, backed by thorough onsite due diligence
- Comprehensive pretrade comparison (bid) process with effective price discovery
- Transition strategies and service levels to meet a client’s specific size, complexity and needs
- Independent post-transition assessment
- We provide knowledgeable guidance throughout the process.
Most institutional investors are likely to monitor and understand gross returns but to achieve optimal returns, they also need to focus on:
- Investment efficiency: Understanding revenues and costs associated with investment operations and implementation and whether these are in line with market best practice.
- Operational risks: Evaluating how controls are being applied within operating environments, e.g. within your custodians or your investment managers, as well as what controls exist where various intermediaries interact.
- Value for money: Benchmarking your costs, income and service levels to determine whether these are in line with market best practice and market standards.
Monitoring is about establishing a framework, evaluation and reporting, evaluating revenue sources and costs, benchmarking capabilities and controls, and operational and implementation performance.
Mercer has extensive experience consulting to institutional investors on all aspects of securities lending programs including identifying the most appropriate:
- Route to market.
- Advising on program structures.
- Evaluating and selecting lenders.
- Assessing and benchmarking lending operations and controls.
- Assessing lending revenue estimates.