Alternative asset managers face “substantial” barriers to inclusion on consultant recommendation lists in Europe, according to new research from Cerulli Associates.
Not only must firms have at least €100 million ($105 million) under management to qualify for consideration, most consultants require at least a three-year track record, locking out small and emerging managers, the research firm found in a report this month.
What’s more, alternative asset managers surveyed by Cerulli said it’s difficult to appeal to consultants because of the disparity in how they’re rated and measured. As a result, firms with original or unconventional strategies struggle for spots on industry shortlists, as they cannot be judged against traditional benchmarks, the research firm said.
Consultants serve as the gatekeepers of the asset management industry, and their “buy lists” often determine which managers can access investor capital as they look to raise funds. A Financial Conduct Authority report on the U.K. asset management industry released in November found that the region’s twelve largest investment consultants influenced the deployment of as much as £1.6 trillion ($1.9 trillion) in pension, endowment, and insurance assets. Yet the regulator said their recommendations failed in their purpose of highlighting outperforming managers and instead acted as a barrier to innovation.
“When looking at the performance of investment products recommended by investment consultants our analysis shows that, across all product categories taken together, consultant-recommended products do not perform better than non-recommended products,” the Financial Conduct Authority said in its report.
Barbara Wall, managing director at Cerulli’s European office, said consultants are reluctant to change their recommendations if it means eliminating a fund from their short list.
“Unpicking clients from a fund costs a consultant in terms of both time and money, but, most damaging of all, it is tantamount to admitting a mistake,” she said.
Still, the research firm suggested that the tide may be turning for alternative managers, as consultants rethink their strategies in the face of a low-return environment.
“Managers that show perseverance and patience in maintaining regular contact with consultant representatives should see a greater number of opportunities with consultants,” said Justina Deveikyte, associate director at Cerulli. “Strategies that had been closed to consideration are open again.”
