How asset consultants influence institutional property allocation decisions: An Australian study

The Australian managed funds industry including the large pension funds (known locally as superannuation funds) are the dominant institutional property investors. Underpinned by the Australian government's compulsory superannuation policy, the industry has grown nearly ninefold from A$171 billion in 1988 to A$2.2 trillion in 2013. The rapid growth of the Australian funds management industry assets has resulted in fund managers increasingly outsourcing their investment management functions with a focus on increasing member investment returns. Therefore, the role of specialist monitors such as asset consultants, who serve as 'gate-keepers' between the investment manager and institutional investors, has become more important in the marketplace. This research paper examines how eight leading Australian asset consultant firms determine the optimal property allocation view, and formulate their client property asset allocation decision-making advice process. The survey results indicate that asset consultants now play a notable part in the thought process of Australian fund managers' property asset allocation decisions. Asset consultants provide advice to Australian fund managers on approximately 80% of the asset allocation functions. In many instances, using asset consultants limits the decision requirements on the fund managers. This was particularly evident for superannuation funds, where almost half of the funds surveyed outsourced their asset allocation function to asset consultants.