Virtual Reality? Investment Consultants’ Claims About Their Own Performance
34 Pages Posted: 8 Aug 2018 Last revised: 12 Apr 2019
Date Written: April 11, 2019
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: Suggested Citation