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Mercer (Service Provider)

Service Providers Framework 2020

You are in Investment Consultancy » Manager selection and monitoring

Manager selection and monitoring

IC 12. ESG in manager selection, appointment and monitoring

12.1. Indicate whether you incorporate ESG factors into your manager selection and monitoring services.

Manager selection service

Manager monitoring service

12.3. Additional information. [OPTIONAL]

Mercer established its ESG ratings as part of the manager research process globally in 2008, with ratings at a strategy rather than fund level since 2010. See the following questions for more detail.


SELECTION

IC 13. Manager selection activities

13.1. Indicate what activities you undertake during the process of selecting a manager.

Research and screening

Strategy

ESG people/oversight

Process/portfolio construction

Selection process and reviewing documentation

13.2. Indicate whether you use any of the following scores or targets in your manager selection process.

13.3. Additional information. [OPTIONAL]

Mercer's clients require varying levels of support during the process of selecting an investment manager.

  • GIMD only - subscribers to our Global Investment Manager Database undertake their own selection process based on our research.
  • Moderate support - limited to drawing up short list, or another single part of the selection process.
  • Full service support - detailed guidance on portfolio construction, screening the database, long lists and short lists, site visits, finalist opinions, due diligence and contracting.

Some Mercer clients also elect to outsource the implementation of manager selection and monitoring via Delegated Solutions.


IC 14. Incorporating asset owners’ investment principles in selection of manager

14.1. Describe how you incorporate asset owners` investment principles into the manager selection process.

          The first step in any manager selection exercise for clients is to screen Mercer's internal research system ("GIMD") for top-rated strategies (A, B+) within the specified asset class and with the appropriate ESG rating - to ensure that client objectives and investment principles are appropriately captured. This can include setting minimum standards using Mercer's ESG ratings (e.g. some clients will not consider strategies with an ESG4 rating or will only seek ESG1 or ESG2 rated strategies or may seek bespoke mandates to be developed). This step may also involve the individual manager researcher with responsibility for researching the particular asset class.

If required by the client, Mercer will then prepare a long list of the available managers and investment strategies, including a brief profile for each. Mercer then works with the client to produce a shortlist of managers to be included in a comprehensive manager selection process - including a report and subsequent "beauty parade" - after which a manager or managers will be selected by the client. We also have access to ESG data which we can use at the portfolio level to review additional characteristics of importance to clients (e.g. exposure to certain sectors, or carbon footprint analysis).
        

14.2. Additional information. [OPTIONAL]


IC 15. ESG in selection due diligence

15.1. Briefly describe how you include ESG factors in your due diligence process for manager selection.

          Mercer’s approach to ESG integration is referred to as the Pathway to Responsible Investing. It seeks to integrate ESG throughout the investment process, including manager selection and monitoring.  

Key to how Mercer ensures ESG factors are included in the selection and monitoring process is our proprietary RI manager research framework, which results in an ESG rating [ESG1 (the highest rated strategies) to ESG4 (the lowest)] and narrative utilising Mercer’s four-factor rating system (Idea Generation; Portfolio Construction; Implementation (voting and engagement); Firm-Wide Commitment).  

Since 2010 Mercer's Manager Research team has assigned an explicit ESG rating at the investment strategy level as part of the standard manager research process globally across asset classes (in the two years prior the RI team conducted firm wide reviews). These ratings are available to all clients as part of standard manager selection and monitoring services.  

For a strategy to be assigned an ESG1 rating, the investment team must have demonstrated market-leading capabilities in integrating ESG and responsible ownership into the way they generate investment ideas, construct portfolios, implement responsible ownership practices (through voting and engagement), and the degree of firm-wide commitment to ESG issues. In 2014 Mercer also introduced its ESGp (passive) ratings for passively managed equity strategies, the ESGp ratings scale range from ESGp1 (highest) to ESGp4 (lowest) 

As at December 2019, Mercer had assigned an ESG rating to more than 4,500 strategies, and we will continue to pursue ESG integration as important for fund manager strategies, particularly as more asset owners build ESG into their selection and monitoring criteria.
        

15.2. Additional information. [OPTIONAL]


IC 16. Monitoring investment managers on ESG

16.1. Indicate whether you set any of the following to measure compliance/progress, or use the following information to review and evaluate the investment manager.

Setting measures for the investment manager as part of the monitoring process

          The weight ESG is given in the process is key in our monitoring approach, rather than bottom up portfolio weights at a point in time.
        

Reviewing and evaluating information from the investment manager as part of the monitoring process

          Impact reporting capabilities
        

16.2. Describe how you raise and manage concerns when monitoring investment managers on ESG factors.

          Mercer has continual dialogue with a wide range of managers, globally, as part of our manager research and monitoring activities. Any specific ESG concerns that arise are typically addressed by following up with the managers and recording any meeting notes in a Research View that is posted onto the Mercer Database (GIMD). If specific concerns related to ESG are identified during manager monitoring conducted on behalf of clients, we will raise these directly with individual managers. Mercer may act on behalf of a number of clients in this process.
        

16.3. Additional information. [OPTIONAL]


IC 17. Reporting back to asset owners

17.1. Indicate whether you report back to asset owners on your manager selection and/or monitoring activities.

17.2. If yes, describe how you report back and the frequency.

          All manager selection and monitoring work is conducted on behalf of our clients. As a result, all relevant information is provided to clients as frequently as is necessary. For example, during a specific manager search process Mercer will be in regular contact throughout. For monitoring of appointed managers, quarterly updates are common, but frequency will vary by client. Ad-hoc updates on individual managers are provided as required and communicated through GIMD (e.g. update on significant personnel or organizational changes). 

Strategies will typically be rated between 12-24 months depending on their investment rating (at which time the ESG rating is also updated). These updated reports are typically sent to the client and any more frequent monitoring activities will also be reported to clients. Any unexpected news that comes up related to a specific strategy is conveyed to the client via a News Item with any follow up contact with the manager, as required.
        

17.4. Additional information. [OPTIONAL]


IC 18. Demonstrating value on manager selection, appointment and monitoring

18.1. Describe how you measure, track or otherwise demonstrate your value on manager selection and monitoring services.

          Mercer conducts regular analysis of our own investment research performance, using our own comprehensive dataset, to illustrate to our clients the value we add. Mercer’s “Measurement of Value Added Through Mercer’s Manager Research Recommendations” analysis illustrates Mercer’s ability, across a wide range of asset classes, to identify investment products that outperform their relevant benchmarks.
        

18.2. Additional information. [OPTIONAL]


IC 19. ESG in manager selection, appointment and monitoring (Private)


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