Virtual Reality? Investment Consultants’ Claims About Their Own Performance

34 Pages Posted: 8 Aug 2018 Last revised: 12 Apr 2019

See all articles by Gordon Cookson

Gordon Cookson

Financial Conduct Authority

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Howard Jones

University of Oxford, Saïd Business School

Jose Vicente Martinez

University of Connecticut

Date Written: April 11, 2019

Abstract

Investment consultants market their services by claiming that their fund manager recommendations add significant value. Using detailed data from the leading investment consultants we find no such evidence. An analysis of consultants’ disclosures reveals a number of practices that explain their claims: comparisons to benchmarks rather than to peers, inclusion of simulated and backfilled returns, use of investment horizons that allow losers to be forgotten, and unexplained exclusions of products from the analysis. Institutional investors cannot verify investment consultants’ claims, and may therefore be following consultants’ manager recommendations, and allocating assets, on false pretenses.

Keywords: Investment consultants, recommendations, institutional asset managers, voluntary performance disclosures

JEL Classification: G20, G23, G24, L84

Suggested Citation

Cookson, Gordon and Jenkinson, Tim and Jones, Howard and Martinez, Jose Vicente, Virtual Reality? Investment Consultants’ Claims About Their Own Performance (April 11, 2019). Available at SSRN: https://ssrn.com/abstract=3214693 or http://dx.doi.org/10.2139/ssrn.3214693

Gordon Cookson

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Tim Jenkinson (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)

HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Howard Jones

University of Oxford, Saïd Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/research/people/Pages/HowardJones.aspx

Jose Vicente Martinez

University of Connecticut ( email )

2100 Hillside Road, Unit 1041
Storrs, CT 06269
United States

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