Almost half of the respondents to this month’s Off The Record survey used
investment consultants on a retainer basis, although just slightly fewer used them on an occasional or project basis. Only two respondents never use consultants.


Half of the respondents described their consultant as a global firm, while a quarter said they were local.

A total of 33 respondents gave asset allocation advice as a reason for using consultants. This was followed by equities (31 respondents), fixed income (29), hedge funds and ALM (both 23), real estate (22), and LDI and swaps (17).

Consultants were said to have added value to 23 respondents’ portfolios. A UK fund said: “In 2009, we changed from one of the big four who got very complacent. We now have a consultant that thinks about us, as opposed to the herd, and has added some £150m over what we could have got with our old consultant.” A southern European fund added: “They [have] helped us to become a more global investor and more sophisticated in that they have educated our trustees to include more categories and more diversification. [However] I believe they need to be more proactive in tactical asset allocation.”

Just eight respondents felt consultants had not added value to their investment portfolio, while 17 had mixed views. “We have had situations where the adviser recommended us to disinvest, having previously recommended that manager to us. The advisers should have uncovered the problem much earlier, before recommending them. We incurred unnecessary costs and were bearing unforeseen levels of risk.”

Twenty-eight respondents thought investment consultants were better placed than asset managers to offer asset allocation advice, with one Swiss fund considering them to be “more neutral and objective”. Not all respondents agreed. A Dutch fund commented: “I think asset managers have a close connection with and better understanding of market drivers.” A UK fund echoed this view: “[Consultants] are not at the sharp end of the business and tend to be trend followers rather than industry leaders.”

Well over three-quarters of respondents believed their consultant took their ambition to be a truly long-term investor seriously. “I think this actually differentiates the adviser we use from others we have spoken to,” said a UK fund.

Just under half of respondents said their consultant had, at some point, provided unexpected advice that proved useful. “[They] requested [we] provide them more freedom in their investment choices, which helped us to reduce the loss at the start of the economic crisis,” said a Belgian fund. However, the same number of respondents stated their consultant had been guilty of providing them with bad advice, with an Austrian fund feeling they had been recommended the “wrong asset allocation”.

Nineteen respondents had previously awarded an investment mandate to a manager not on their consultant’s approved list. A UK scheme commented: “[We] used another adviser from a retained firm - a difficult experience.” A Dutch fund added: “We do not always ask the consultant’s advice”.

Respondents felt consultants could better serve pension funds in many ways. They could “spend less time analysing the recent past, understand products better and consider the possibilities for the future, and stop referring to standard deviation as risk”, said a UK fund. A Dutch fund specified a variety of areas in which consultants could improve: “Communication; offer a range of possible choices with pros and cons; make governance responsibilities clear; transfer knowledge; pro-actively inform; lobby”.

A UK fund stated that consultants’ fees should be reviewed: “[Consultants should] be more accountable for their recommendations - share the pain and the gain when it materialises, [and] be prepared to be rewarded according to how well they advise. They are incredibly expensive, given they have so little to lose if they do a bad job, or even a mediocre one, so a more cost-effective model for advising trustees would be great.”

This story first appeared in the March issue of IPE magazine.