Operational Risk and Consulting

Investments

Mercer Sentinel®: An Investment Industry Leader in Operational Risk

Mercer Sentinel® is a specialist team focused on advising investors and investment managers on risks associated with investment operations and their execution. The team is focused on operational and service provider risk and is comprised of industry professionals with the knowledge and experience necessary to guide clients through investment operations, execution, custody and risk management decisions.

Mercer Sentinel is a recognized industry leader with respect to consulting on middle office, investment operations, custody and transaction-based activities, including execution quality, operational risk management and governance.

We offer a combination of extensive practical and operational experience through our team of 50+ professionals, who are located in North America, Europe and Asia Pacific. This team is supported by a deep resource base consisting of proprietary databases, analytical tools and Mercer’s best practice framework.

Mercer Sentinel Services

Our experience shows that firms of all shapes and sizes continue to face basic business risks and increasing regulatory demands.  Investors and investment managers need to be cognizant of operational risks in order to effectively manage them and meet their regulatory duties.

Operational risk consulting: Investment manager operational due diligence and investment manager operational infrastructure optimization.

Custody consulting: Custodian selection, fee and capabilities benchmarking and asset safety reviews.

Transaction/execution cost and efficiency consulting: Investment manager transitions support and transition manager selection.

We help our clients reduce risk and costs as well as potentially improve returns through better control and management of the activities associated with holding, trading, and servicing investment portfolios.

Our Services

Foreign Exchange 

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.

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.

Monitoring  

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.

Securities Lending

Mercer has extensive experience consulting to institutional investors on all aspects of securities lending programs including identifying the most appropriate:

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.

Custody Consulting

A custodian can be an invaluable partner in prudently managing, administering and overseeing your investments. We help clients with a wide range of custody-related projects, from selecting new custodians, custodian governance through capabilities review, performance monitoring and asset safety reviews to simply assessing value for money through fee benchmarking reviews. We apply a comprehensive evaluation process, combining our proprietary best practice benchmarking with onsite research and due diligence.

We also have extensive experience advising on all aspects of securities lending programs.  We advise on program structures, evaluating and selecting lenders, assessing and benchmarking ongoing securities lending operations and controls. In addition to providing a thorough assessment of a lending provider’s capabilities, its internal control structure and collateral management, we also assess the reasonableness and competitiveness of lending revenue estimates.

Foreign Exchange and Equity Transaction Cost Analysis (TCA) Mercer Sentinel performs FX and equity TCA reviews that help clients understand whether their execution costs are appropriate and competitive relative to their size and other offerings in the marketplace.

Based on our analytical techniques and operational insights, clients have been able to both reduce costs and negotiate fee reductions to directly benefit their portfolios.

Transition Consulting

Undertaking transitions can incur significant risks and material costs. Regardless of how simple they seem, each transition presents unique challenges and complexities. This demands oversight, and oversight demands considerable experience and knowledge. Mercer Sentinel has market-leading solutions to assist and advise clients on all transition aspects: 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. Our unique and sophisticated methodologies promote transparent cost and risk discovery.

We maintain close contact with all Transition Managers in the market and can assist with selection of a provider where required.

Mercer Advantage

Dedicated specialists focused solely on governance, service provider, investment operations and execution risk

  • We are not generalists. Investment operations and execution risks are our sole focus.
  • We assess the structure and controls surrounding investment operations and transactions, asset administration and key service provider relationships.

Expert team with highly specialized backgrounds

  • Our approach is to provide our clients with access to individuals with extensive professional experience in custody, operations, transitions, risk management and investment administration. 

Extensive knowledge of industry best practices

  • Our team has vast experience globally. We conduct hundreds of projects annually, and have covered over $2 trillion in invested assets over the past 15 years. This provides us with a keen insight into industry best practices.

Global reach

  • As a global team (50+), we use our local knowledge to benefit clients who invest internationally.

Resource on Demand

  • Operations, service provider, and execution risk evaluation can be very time consuming and an expensive use of resources. At Mercer we  can provide experienced personnel on demand.
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