EUROPE - European pension fund associations are demanding that investment consultants that advise on manager selection be subject to stringent new performance measurement arrangements.
According to comments from the pension fund industry, investment consultants have never been more under the spotlight and it is now or never for them to prove their worth.
Rolf Skomsvold, managing director of the Norwegian pension fund association, said: “All hired help's performance should in principle be measured.
“Even if you find the task of actual measurement insuperable, you should try to keep consultants on their toes.”
Frank Anderson, chairman of the Finnish pension fund association, agreed that consultant performance should be measured.
And Hugo Clemeur, general secretary of the Belgian association of pension funds, said: “The main thing is to know by what methodology the buy list is drafted, whether the method has been used consistently in the past, and whether the excess performance which eventually emerges has, from a statistical point of view, a sufficient degree of significance as well as continuity given certain constraints – such as with respect to volatility or ALM considerations”.
This month, Watson Wyatt is due to follow Mercer in publishing details of its manager recommendations, or notional portfolios.
But, according to performance measurers WM Company, this is not enough.
Sarinder Singh, executive director at WM, said: “Watsons said they would publish, but they are measuring themselves – that’s the issue.”
Singh added that the balance of decision making has swung very much toward the consultant – particularly in setting a strategic asset allocation – and away from fund managers who “are just making the stock-picking decisions.”
He added of WM’s moves to measure consultant performance: “We’ve been trying to push this for a long time.
“We’ve been measuring a consultant’s recommendations but it hasn’t really taken off because the consultants don’t want to tell us what they are doing.”
Singh revealed WM is developing a classification system for all pension funds so WM can hold consultants to account without consultants being able to claim that the performance measurers are not comparing like for like.
Clemeur at the Belgian association added: “Measuring the performance of consultants according to the actual performance of asset managers who are on the consultants’ buy lists involves a second layer of complexity... Simply measuring the consultants according to the actual performance of their selection of asset managers is hardly acceptable. Any fool may have a lucky day, and, vice versa.”
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