Mercer Advisors' private fund of funds draws light use two years in

Mercer Advisors is two years into an in-house fund of funds for clients with about $10 million in assets, and its advisors remain in the early stages of using it, David Krakauer said Tuesday.

Krakauer, vice president of portfolio management at the Denver-based RIA, spoke at the opening of RIA Edge Private Markets in Austin, Texas, in a conversation with Wealth Management editorial director David Bodamer. Mercer oversees $114 billion in client assets. WealthManagement.com first reported his remarks.

For an RIA principal weighing a similar build, Mercer supplies a reference point. A firm with $114 billion in client assets has run an in-house sleeve for two years, and its own advisors have not made it a mainstream option. The claim to test is the fee: Krakauer said the structure comes "without any additional layering fees," which suggests the comparison that matters is against an externally assembled fund of funds that stacks its own charge on the underlying managers'.

Mercer built the funds for what Krakauer called a middle space between million-dollar and billion-dollar clients. "We do direct deal investing for top clients," he said. "But then there's also a middle space there, let's say $10 million." For those clients, he said, Mercer decided "the best thing for those clients was to do something that wasn't really available in the market," which was to bring the capability in-house.

Mercer's team selects the general partners and assembles diversification inside a single fund with a single K-1. Krakauer said the firm does this "without any additional layering fees." The investments are in their second vintage, and advisors can draw on a menu spanning private equity, credit and real estate.

The selection sits with the advisor. "It's really up to the advisor to decide what's best for that client," Krakauer said. "We give our advisors a lot of free rein to look at our whole menu and decide, you know, is this a match for liquidity? Is this a match for sizing? Is this a match for the overall objective?" Some clients, he said, are focused on income or on true diversification.

Asked from the audience about uptake, Krakauer said the fund of funds remain in the nascent stages of use. "The fund of funds are really for just a select sub-segment of the lower-level QPs," he said. The build runs alongside acquisitions: Deal Tracker records two deals announced by Mercer in the past 12 months, both as buyer and neither closed, the most recent announced Nov. 5.

As Private Wealth Daily previously reported, Mercer added a philanthropy team for clients at its $10 million tier. The open question is whether the second vintage draws more of Mercer's advisors into the funds than the first did.