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COMMENT: Old rival, new shores

Courtland Partners’ expansion to Europe opens up a new front in the consultancy industry’s ongoing battle for clients.

One of the more controversial developments we can recall in European private equity real estate arrived in May 2010. It came when Townsend, the Cleveland-based consultant, announced it had hired Nick Cooper for its newly-opened London office to help the firm win multi-manager mandates in Europe.

The news shot to the top of PERE’s news site the same way a celebrity scandal would on America’s TMZ. It sparked a frenzy among advisory firms and fund of funds managers in equal measure. Both groups took the opportunity to (privately) criticize a firm whose model blurred the line between pure advisory and fund management.

Since then, no other US consultant has opened up in Europe. However, it emerged this week that one of Townsend’s closest rivals, Courtland Partners, was doing so and just made its first Europe-based hire, bringing aboard Gianluca Romano from Vision Consulting.

Still, the news about Courtland has not created quite the same hullabaloo as that which accompanied Townsend. Why?

It can’t be because the issue over potential conflicts of interest at some consultants has gone away. That debate remains as heated now as it was then and splits opinion among LPs: some believe the conflicts can be managed, but many others feel they can’t and argue instead that consultants should only manage funds if there is a really good reason for doing so other than growing their fee income.

The reason why Courtland’s arrival in European hasn’t sparked drama lies in the fact that this is a firm that sits on the far left of the advisory work spectrum. It has so far resisted the allure of greater economic rewards from performance fees and clung doggedly to a model that is 100 percent investment consulting. Therefore, Europe’s fund of funds managers don’t feel threatened, and that is why there has been no gnashing of teeth.

Still, what is important is that a new competitor is emerging, both to the indigenous advisors that have been in Europe for ages and Townsend as well. To be sure, Courtland already has clients in Europe, and the strong rumor now is that it is close to securing another mandate – from French insurer CNP Assurances to advise it on investing in US real estate. For many months now, it has been receiving unsolicited approaches from European investors about gaining exposure to North America.

With a senior person on the ground now, rivals should expect Courtland to want to build up market share. It might take months for it to gain a licence from the UK’s Financial Conduct Authority to operate from London, but it already is talking to people who might join. It will certainly throw more resources at growing a team to win extra business.

One of the challenges that faced Townsend had to do with pricing in Europe as opposed to that on its home turf in the US. Yet, Courtland has found out that, so far, it hasn’t been pricing too highly in Europe. In fact, in one recent pitch, it apparently was the cheapest.

Whether Courtland can remain so competitive when its cost base increases remains to be seen. And who knows if the firm will stick to its pure-play business model indefinitely. Should it ever decide to imitate Townsend and move into fund management, then that might be the moment when the market starts buzzing with controversy once again.