For many pension funds consultants play an important - but not necessarily central role. Sometimes it is better to do things yourself. Richard Lowe spoke to three pension funds about their views

Hans-Wilhelm Korfmacher
Managing director

WPV, the €1bn pension fund for chartered accountants in Germany, uses consultants to conduct its asset-liability study every year. However, when it comes to specific investments it only employs consultancy services when it is looking to invest in asset classes with which it is not familiar or does not already have the necessary in-house experience.

"We conduct asset-liability studies every year and that is done by a consultant firm," says Hans-Wilhelm Korfmacher, managing director at WPV. "In addition, we use consultancy if we are looking for a manager in an asset class with which we are not familiar. In other asset classes in which we are already invested, we usually invest without the help of a consultant. That is the difference we see between asset classes in which we know the managers and can choose between them, and asset classes in which we are not invested and do not have the experience."

WPV used a consultant five years ago when it diversified its investments to include real estate. Unlike some German pension funds, WPV has never invested directly in real estate assets and so it has only ever invested indirectly across Europe (with the exception of two vehicles investing in Asia). Today Korfmacher believes the fund has enough in-house expertise to operate its real estate investments without the help of consultants.

"We used a consultant five years ago when we first invested in the European markets," he says. "Now we are experienced enough to invest in European real estate assets without a consultant. I was able to improve my knowledge during the last years as a member of the investment committee of several special funds investing in the European real estate market".

WPV is not currently looking to increase its exposure to Asia. If it were to do so Korfmacher says the fund might look at using the help of a consultant. "But I cannot foresee whether it is necessary," he adds.

When asked if he sees the lines between consultants and investment managers being blurred in any way, Korfmacher comments: "I am talking with many asset managers in all asset classes, so I am learning from day to day and my experience is growing.

"If you think of this as part of consultancy, I am using the consultancy of all asset managers. But we don't hire an asset manager in order to help with an asset class.

"For me, an asset manager is an asset manager. He gives me the chance to invest in the product he is offering. But for me an asset manager will never be a consultant. He cannot be independent."

Graham Chidlow
Head of finance
Shropshire County Council Pension Fund
TOTAL ASSETS: (£930m) €1.15bn

The Shropshire Country Council Pension Fund's real estate allocation is entirely invested in a pan-European fund of funds run by Goodman Property Investors. For this reason, the pension fund has no need for consultant advice for its real estate investments on an ongoing basis.

"Rather than using a consultant to assist us to choose individual investments, we deal with everything through a fund of funds manager," explains Graham Chidlow, head of finance at the £930m (€1.15bn) local authority fund. "Once we have selected them, we leave it up to them in terms of choosing the individual managers they feel are most appropriate."

Shropshire Country Council Pension Fund extends this approach to two other asset classes, hedge funds and private equity, to which it has relatively limited exposure compared with equities and fixed income. "We don't have the level of assets to invest individually in hedge funds or private equity companies or real estate," Chidlow says, confirming that he envisages maintaining this approach over the long term.

However, consultants played their part in the fund's initial decision to ultimately move away from a UK-only property portfolio to a pan-European fund of funds. "Our consultants suggested that given our level of assets, the fund of funds approach was the way to go," Chidlow says. "But I think we already knew that, to be honest."

And the pension fund always uses consultants when selecting a fund of funds manager, depending on who they "feel is most appropriate" for the asset class in question.

Philip Menco
De Eendragt Pensioen

Investors in some countries "rely too much on consultants for everything", says Philip Menco, CEO at the €1bn De Eendragt Pensioen.

He believes the sweeping use of consultants on the part of pension funds to cover all bases of liability is potentially dangerous, especially if it leads to a small number of consultants having influence over a growing volume of institutional capital. "If these people have other interests or don't do their homework very well, there is systematic risk," Menco says.

De Eendragt Pensioen uses consultants for more complex aspects of its investment process, such as investing in derivatives for its liability-matching portfolio, where there is need for specialist expertise in areas of, for example, law, "trading and monitoring of positions" and collateral management. "That is very specialised work, but very different from using a consultant for research," Menco says.

The pension fund does not use consultants in assessing real estate investment markets and selecting fund managers.

"We think we have to do our own research and our own homework," he says. "That is much better than using consultants, where the average consultant is not very impressive and they add very little value in general to your investment process."
De Eendragt Pensioen currently invests in real estate only situated across the eurozone.

When asked if the pension fund would consider turning to consultants if it was considering investing in less familiar markets, Menco maintains his cynicism.
"We have had some discussions with consultants in the past and have come to the conclusion that their added-value is not very high," he says.