How helpful do CIOs find investment consultants?
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Investment consultants should get deeper into the details of what chief investment officers grapple with and give more convicted advice, CIOs have said, but others argue that consultants’ output merely reflects the input from pension funds.
A panel of three CIOs from open pension funds had varied views on the contribution of investment consultants. At the Pensions and Lifetime Savings Association’s Investment Conference in Edinburgh on Tuesday, the chair of the Pensions Regulator, Sarah Smart, asked them how investment committees and consultants can best work with CIOs to deliver good outcomes for savers.
Leandros Kalisperas, CIO of the £19bn West Yorkshire Pension Fund, found that having a board and independent advisers “does work”. The fund does not use consultants in the traditional sense because it is in-house managed, he said, but stressed that he relies on three independent advisers whose experience and “wisdom” he values.
However, Kalisperas criticised a lack of detail in how some consultants advise on markets. He said he found it “curious” when consultants advising the fund on a valuation and strategic asset allocation project “made very big assumptions about markets, single assumptions about the whole thing, they did not look to grapple with the detail”.
He therefore advised consultants to get “deep” into what a CIO is dealing with daily when looking at capital markets, “going toe-to-toe with that as opposed to ignoring it”.
Dan Mikulskis, CIO of master trust provider the People’s Partnership, said as a former consultant, he now sees that consultants miss some operational aspects of a scheme, which is important for the work of CIOs.
“I do think there's some operational things that consultants just don't get exposure to,” he said.
He also found there is a need for clearer recommendations instead of being presented with both sides of an issue, through shorter and more convicted papers.
"It's things like being really clear with you, to not always kind of feeling the need to [present] both sides of everything and put three options,” he said.
“When you're an asset owner, you're really on the spot to make a lot of decisions,” therefore shorter papers with clear views are helpful.
“I'm sure a lot of committee papers run into the hundreds, often topping 200 pages. In my view, that can almost always be halved,” he added.
For Padmesh Shukla, investment chief at the TfL Pension Fund, the question is however one of principal and agent, where issues arise if trustees do not know what they want from consultants.
"Consultants will be as effective as you are in working with them. I think there's a very easy habit of blaming consultants,” he said. “I don't think the problem is with them, the problem is actually more on our side.”
“For us, the way we see consultants, they're almost like a partnership. And we set the goals. And it's quite clear that it's good [to have] checks and balances, because in the end we are taking some very quick, complicated decisions. So it's always good to have someone challenge you... but in the end, it's about how you use your consultants,” he said.
While the scheme tries to conduct manager research, for example, in-house, “we cannot match our consultants with their sheer number of foot soldiers on the ground, so it's about just using them where their core strength lies and being respectful.”
How can investment consultants improve their advice to pension funds?
