October 13, 2016

Will a large institutional consultant help you pick the best money managers?

Not according to a recent issue of the Journal of Finance. “Do Institutional Consultants Add Value Picking Money Managers?” by Ben Carlson explains the Journal’s research, which suggests that mega-consultants (those with several hundred billion or more under management) may not offer much value to their clients when it comes to selecting money managers. “One of the problems is that these consulting firms are so concentrated at the top, with the top 10 firms controlling over 80% of institutional assets…When you’re that large, you almost have to invest in the largest money managers which ends up being a de-facto performance chase.”

The Journal of Finance looked at the money managers selected by institutional investment consultants and found that their recommendations have a significant effect on fund flows, but don’t particularly add value: “We find no evidence that these recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless.”

Arnerich Massena is unique in its ability to conduct proprietary research, including on-site visits with managers and both qualitative and quantitative analysis. The quality of our due diligence, our reputation as long-term investors, and our deep industry relationships help us to attract top money managers globally. The firm is small and nimble enough to access opportunities that would be unavailable to large institutional consultants, including a full range of alternative and private investments. The firm is large enough to compete with mega-consultants yet still offer the services and access of a boutique firm. We have seen the results that come from working with large consultants, and are proud to offer our clients an alternative.

To read Carlson’s article, visit http://awealthofcommonsense.com/2016/09/do-institutional-consultants-add-value-picking-money-managers/

“Picking Winners? Investment Consultants’ Recommendations of Fund Managers” by Tim Jenkinson, Howard Jones, and Jose Vicente Martinez appeared in the September 14 issue of the Journal of Finance, on pages 2333-2370.