Plan sponsors should do away with the beauty contests, according to Strategic Investment Group, Arlington, Va.
According to "Beyond Manager Beauty Contests," a new white paper from the firm, face-to-face presentations at the end of manager searches are a waste of time: "The format of beauty contests creates a natural bias toward presentation skills at the expense of the investment process."
The paper also points out that the typical search process misuses the consultant. That's because the consultant is typically responsible for drafting an RFP and paring the list of candidates to a select group of finalists, at which point the consultant's fiduciary responsibility to the fund ends — leaving plan sponsors vulnerable to potential mistakes in manager selection.
What plan sponsors should be doing, according to the paper, is handing the search and hire duties over to their consultants, along with total fiduciary responsibility for those searches.
Plan sponsors should either give the consultant total control over the search process, or none at all, Deborah Boedicker, a principal at SIG, said in an interview. "You can't have it halfway," she said. "But about 70% of institutional investors have that system."