"Most exceptionally successful long-term investors have proclaimed, at one time or another, their skepticism about investment consultants and the growing use of performance benchmarks aimed at splicing performances among investment styles, geographies, company sizes, sectors, etc.

The skeptics have included the likes of Warren Buffett, Charlie Munger, Peter Lynch, Martin Whitman, Jim Rogers, Seth Klarman, Georges Soros, Howard Marks, et al.  Recently a new Oxford University paper joined this critique.

The Financial Times of September 22, 2014, cites a study by a team of from Oxford University’s Saïd Business School, which analyzed consultants for more than 90 per cent of the retirement market.  It concludes, “On an equal-weighted basis, U.S. equity funds recommended by consultants underperformed other funds by 1.1 per cent a year between 1999 and 2011.”

their problem is rooted in the fact that what was once a practice has become a business.  This business requires consultants to foster a growing appetite for their services among clients, by creating a need for more frequent measurement and decision-making.  Thus, measuring and critiquing performance has become a quarterly practice – and at times, more often than that.

Unfortunately, in investing, a quarter or even a year is almost always a totally irrelevant period.

"We find that investment consultants’ recommendations of funds are driven largely by soft factors, rather than the funds’ past performance, and that their recommendations have a very significant effect on fund flows. However, we find no evidence that these recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless."

The third possible reason why plan sponsors follow investment consultants’ manager
recommendations is that they are simply unaware how accurate or inaccurate they are. While
consultants insist on full transparency in the performance of the fund managers they rate, they do
not disclose their past recommendations to allow analysis of their own performance.

Investment consultants do not disclose their past recommendations publicly in a way that
would allow their accuracy to be measured. Some consultants show their ‘value added’ by
comparing the performance of a portfolio of their recommended funds with that of an appropriate
benchmark. However, they do not generally compare this performance with the performance of
institutional funds which they do not recommend, nor do they make available the underlying data
for scrutiny by third parties.

In model I, where performance is assessed using industry-standard excess returns over
benchmark indices, recommended products underperform non-recommended products by 0.88%
per year; less than the 1.10% per year reported in Table IV but still highly statistically


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