These advisers and consultants fill a variety of roles including providing recommendations on asset allocation, portfolio construction, risk analysis and fund selection. They also perform due diligence and offer performance analysis.
At the Oregon Investment Council, spokesman James Sinks said the private equity team relies heavily on outside advice from its private equity adviser, TorreyCove Capital Partners. “When you are managing billions of dollars, it’s imperative to get a second set of eyes on the kinds of investments that are out there and what’s the best fit for your portfolio.”
The bigger firms, like Hamilton Lane and StepStone, said that an adviser’s size can give clients an advantage, saying that it enables them to have offices in different countries and offer a fuller range of services.
“Being global has always important, but today, it’s critical,” said Erik Hirsch, the chief investment officer of Hamilton Lane, a consultant to investors like the Texas Teachers’ Retirement System and the Washington State Investment Board. “When advisers do not have a real global presence, it means that they’ll struggle to react to global developments.”
Some firms, such as Mercer and Cambridge Associates, are generalist consulting firms that also have strong capabilities in private equity. Other firms, like TorreyCove, StepStone and Franklin Park are known as private equity specialists, while some firms, like Hamilton Lane and LP Capital Advisors, offer advice in alternatives, including private equity.
Perhaps the biggest line in the sand is whether or not a firm manages assets. Firms that don’t manage assets, like Pension Consulting Alliance and Strategic Investment Solutions, view being purely an adviser as being one of their key marketing advantages.
“We’ve stuck to our knitting,” said Mike Moy, a managing director at PCA, a firm that offers only non-discretionary advice to its clients, including the California Public Employees’ Retirement System and the California State Teachers Retirement System. “We are a non-discretionary consultant and have never managed money. We feel our clients are deserving of conflict-free advice.”
Not surprisingly, Hirsch of Hamilton Lane disputes the presumption that managing assets means you can’t be conflict-free. “Our advice is conflict-free,” said Hirsch. “I can’t think of a better alignment of interests than investing your own money alongside your client.”
TorreyCove, which advises Oregon, does not invest in private equity. The firm’s chief executive, David Fann, said “there is a segment of clients out there who like the purist model, and they are able to understand where issues might arise.” Although Fann praises the industry for “doing a pretty good job of making full disclosures” of potential conflicts, he questioned whether such full disclosures “were as good as not having potential conflicts to begin with.”
More on how the top gatekeepers differentiate themselves in the accompanying table.