Campiche argues consultants are risk-biased by their nature and tend to move clients to large organisations. These asset managers get bigger and have less need to compete on fees, creating a vicious circle.
“Consultants are very much part of the problem,” says Campiche. “It’s crazy that once a manager has passed due diligence the assets can grow at a speed we have never seen before.”
There have been calls for tighter regulation of investment consultants. This debate has been stimulated by the increasing use of delegation within the consulting community where consultants extend beyond a traditional consulting role into that of an asset manager.
Some consultants say there is a continuum between a consulting role and becoming involved in other parts of the portfolio. Cynics might describe this as ‘marketing by stealth’, resulting in consultants being engaged as the manager in any one of a number of differently titled delegated roles.
Phil Irvine, a director at PiRho Consulting believes the lines of demarcation are clear, but may not be fully understood by all players. “In the investment world, there is no grey continuum, but a sharp line. If you change your role, you change your role and the regulator may question you on it,” says Irvine.
“Consultants already set our homework and mark it. Trustees must consider the governance structure they employ in their scheme and determine how they will manage conflicts.”
DON’T STOP BELIEVING
Pension funds have a need for diversification as long-only passive investments are not going to tick all the boxes. Hedge funds offer something different and allocations are likely to continue to increase in the US and also at a reduced rate, in continental Europe.
Lyxor’s Enguehard says convergence between historic hedge fund trading strategies and how they become available through long-only absolute return funds in the US and Europe will continue to develop.
“This will contribute to broadening and acceptance and may use hedge fund techniques in order to better protect capital and achieve better returns for investors,” he says.
Aurum’s Gundle adds: “Pension funds are realising that now is an ideal time to have a genuinely non-correlated source of return from mainstream fixed income and equity holdings. Are pension funds heading for the door? Yes. But only to get in.”
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