Smaller pension schemes investing in property funds often feel disempowered compared with larger schemes. This is one of the findings of a PwC report commissioned by the Association of Real Estate Funds (AREF). It found an appetite among smaller institutions for independent investor representation and oversight of fund managers.

The idea that conflicts of interest could emerge between larger and smaller institutional investors in the same real estate fund should come as little surprise. What is more surprising is how little assumption there is that investors should be treated equally.

"Having a large pension-scheme investor makes it easier to raise capital so they'll be able to negotiate more interesting concessions," said Nick Duff, principal at Aon Hewitt. "But aggregated investors can benefit from the same concessions. Often fund managers will treat pension funds investing £xm in a fund as a single investor."

He pointed out that consultants would effectively act as an independent representative of a fund's multiple smaller investors. "We've had a lot of success in approaching managers where there might be issues," he said. "You'll have more influence if you're representing a meaningful percentage of the capital in the fund than you will if you're an isolated investor."

But does intermediation even up in the relative weight of investors? Even if consultants have only a few clients investing in a fund, Duff said, they influence manager appointments and do due diligence on funds. "If the fund manager won't listen to consultants who down the line will make recommendations to their clients, it will come back to bite them," he said.

The head of a large multi-manager business told IP Real Estate some large investors had adopted a new strategy. "They have deep pockets and go to funds, often ones they've invested in before, demanding concessions that would damage the fund and the other investors," he said.

He added: "My objection is not to demanding investors - we're also a demanding investor - but to cases where investors want a deal for themselves at the expense of the fund. It certainly isn't always the case that a large or cornerstone investor will damage the fund, but you have to draw your own conclusions about whether their influence will be positive or negative."

In one case, a cornerstone investor was paid a capital ratio fee for committing equity to a fund. The manager was willing to pay as it would increase the attraction to follow-on investors. "You can't blame the investors," the multi-manager said. "It's the fund manager's fault because they play along with it."

From a governance perspective, the problems identified by the PwC report are fixable. A number of potential options exist for independent representation, including independent memberships of fund manager boards, investment committees and investment committees.

But short of empowering consultants to act on their behalf, it seems there is little that smaller pension funds can do about the asymmetry of influence.

"It is these sorts of concerns that have driven larger investors to move out of the fund environment," said PwC real estate funds partner John Forbes, who conducted the interviews for the report. "If you're a smaller investor, you don't have that option. A pension fund with £10m (€11.9m) to invest doesn't have the option of a segregated account, for example."

He also pointed to an asymmetry of information that allows larger investors to exert disproportionate influence. "It's more difficult to smaller investors to see what's happening."

In theory, independent representatives could bring this kind of asymmetry to light.