Commonfund Prize finds no link between consultants and outperformance

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This year’s Commonfund Prize has been awarded researchers at the Saïd Business School, Oxford University and University of Connecticut School of Business for their paper questioning the ability to find outperformance through the recommendations of investment consultants.

The paper – Picking Winners? Investment Consultants’ Recommendations of Fund Managers was co-authored by Tim Jenkinson, Howard Jones, (Saïd Business School, Oxford University) and Jose Martinez (University of Connecticut School of Business).

They looked at survey data from investment consultants with a combined share of 90% of the consulting market, in regards to recommendations for actively managed US equity funds.

In an abstract of the paper, the authors noted: “We find that investment consultants’ recommendations of funds are driven largely by soft factors, rather than the funds’ past performance, and that their recommendations have a very significant effect on fund flows. However, we find no evidence that these recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless.”

The Commonfund Prize is awarded annually by the Commonfund Institute in collaboration with the Newton Centre for Endowment Asset Management at Cambridge Judge Business School. The winning paper carries a $10,000 prize. The Prize was first awarded in 1996, to stimulate and recognise research in the area of asset management linked to endowment and foundation funds, which are often characterised by perpetual time horizons.

David Chambers, academic director of the Newton Centre for Endowment Asset Management and reader at Cambridge Judge Business School, and one of three judges in the competition, said: “We were extremely pleased with the large number and the high standard of paper submissions for the prize. From a shortlist of papers, the panel unanimously selected the winning paper on the grounds of its relevance to endowments, high standard of scholarship, and significant impact.”

The other two judges were: Elroy Dimson, the Centre’s chairman and professor of Finance at Cambridge Judge Business School, and William Goetzmann, professor of Finance and director of the International Center for Finance at the Yale School of Management.

Two further papers were chosen by the judging panel as runners-up in the category of Highly Commended:

  • Laura Starks (University of Texas at Austin) and Richard Sias and Luke DeVault (University of Arizona) for Who are the Sentiment Traders? Evidence from the Cross-Section of Stock Returns and Demand
  • Neal Stoughton, Georg Cejnek, and Richard Franz (Vienna University of Economics and Business) for An Integrated Model of University Endowment
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