Choosing Pension Fund Investment Consultants

Abstract

We examine the role of investment consultants in shaping the investment policies of U.S. public pension funds. General consultants assist pension funds with asset allocation decisions, and their clients implement similar target allocations. Specialized consultants are increasingly hired to advise on scaling-up investments in private markets and their clients achieve this often by selecting the same asset managers. The convergence in allocations and investments among pension funds using the same consultant, coupled with growing consultant concentration, has significant implications. Although consultants do not improve access to managers in private markets and overall performance, they substantially influence allocations and capital flows.

Keywords: consultants, intermediation, asset allocation, private equity, pension funds

JEL Classification: G11, G23