Tuesday, April 22, 2014

Are Pension Investment consultants worth it? - Rethinking Pensions 2014

Finally got around to posting on the fascinating presentation by Professor Tim Jenkinson (picture right) on the value of investment consultants at last months "Rethinking Pensions" conference. 

It was called "Picking winners? Investment consultants' recommendations of fund managers"

Tim and his fellow researchers Howard Jones and Jose Vicente Martinez believe that there is evidence that (FT) "pension funds are wasting billion of dollars every year on worthless advice from investment consultants". 

This has obviously not gone down all that well with the investment consultant community and it is joked that Tim and his fellow academic researchers should check beneath their cars every morning on the way into work (this is what I have heard being said and not from Tim or his colleagues). 

Tim argued that there had been little academic research beforehand in the effectiveness of investment consultants in the $25 trillion of assets they control or advise upon. His team had found that many asset managers and plan sponsors didn't think they did a good job and that there were many potential conflicts of interest.

It could be that investment consultants have an interest in complexity so to justify their fees. Tim argued that it was a complete mystery to academics why anyone recommends using active fund managers when "hundreds of papers" show passive (trackers) are better. 

Their research showed that investment consultants on fund managers in US equities only averaged 7.13% in return when non recommended fund managers averaged 8.13%.

The investment consultant community are up in arms about this research and are apparently threatening to refuse to engage in future academic research, which if true, I think is completely and utterly disgraceful.

I will ask all of my three different pension fund consultants for which I am a trustee, on what they think of this issue and will also be expecting them to welcome and facilitate such research into their professions performance.

We need to know the facts and everyone should be doing everything they can to get at the truth. 
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