The self-serving piece by Richard N. Smith ("Timberland market more challenging, conflicted," Pensions & Investments, March 22) on the merits of timberland operating companies (timber REITs) was an insult to timberland investment managers which, on the whole, have performed exceptionally well and with their clients' needs in mind for more than a decade. There may indeed be a place within the investment community for securitized timberland investing. Such a market, however, will not be created as a result of conflicts of interests or the failure of timberland investment managers to fulfill their fiduciary obligations to their clients.
It is interesting that Smith aimed the conflict of interest question at those who manage timberland investments in the traditional manner (direct investments), when well-informed timberland investors are fully aware of the great potential for real conflicts of interest within timber operating companies. Timberland REITs to date have been nothing more than wannabes. Could their lack of success be attributed to conflicts of interest, or overpricing of assets? Or is it just because savvy institutional investors are not willing to give up significant potential return for perceived greater liquidity?
Charles M. Tarver
Hooray for your May 17 editorial "Paying to Play." We believe most plan sponsors would pay for truly unbiased advice; they just don't know how to go about getting it or who is really giving it and who isn't.
Not only do many of the large consulting firms have "institutes" to which managers must belong in order to have access to the consultants, but money managers and plan administration or custody providers often offer cash finders fees.
Although asking consultants the "sources of revenue to the firm" question is a good suggestion, what happens when it's just a happy coincidence that the owners of the consulting firm own another firm that happens to be a broker dealer that "friendly" managers can run trades through? An easier question may be, "Does anyone at your firm hold a series 7 license? If yes, why?"
Other questions include:
* What percentage of managers monitored by your firm purchase other services from or run soft dollars through your firm?
* Of all the managers hired by your clients in the past three years, what percentage do not belong to your "institute" or buy other services from your firm?
* From which organizations, other than plan sponsors, has your firm received compensation over the past five years?
In addition, we need to question the managers who think this is the "right way" to grow the business. What ever happened to integrity? Maybe that annual (all expenses paid) consultant conference held in Pebble Beach will be just the thing to help keep the business when performance falls apart. How will the client ever find out about this? What ever happened to doing a good job, and maybe even beating appropriate benchmarks?
If we believe in capitalism and the "invisible hand" theory, it is up to the consumer to make a choice, and the only way a consumer can make a proper choice is by being informed. Disclosure is everything. Your coverage of this issue is paramount. I would love to see more articles and research done on this topic.
Robert J. Bukowski
Alpha Investment Consulting Group LLC