In an audience poll Wednesday, delegates at the Real Estate Emerging Manager Summit in Austin were asked whether they thought it was a conflict of interest for a consultant to have both a discretionary and a non-discretionary business; 78 percent of the respondents said yes.
Speakers during a consultant panel at the conference had more mixed views on the topic. While some firms agreed it was a conflict to have both businesses, others found it to be less problematic. “We do our businesses with separate teams,” said one consultant. “We’re not incented to pick one over the other.”
Another consultant said his firm had a similar business structure. “It’s very separate teams that run our advisory and investment businesses,” the speaker said. “Oftentimes, it’s a very different client base between both.”
A third consultant said firms with the dual business structure had to be evaluated on a case-by-case basis. “I don’t necessarily see it as outright conflict,” he said. “It all depends on how it’s managed. For LPs that are concerned, talk to managers and they will identify those consultants that they see as having a conflict.”
Delegates were similarly asked whether they considered to be a conflict of interest for a consultant to earn profits on fees from co-investments and other direct deals. Again, seventy-eight percent of respondents said yes.
One speaker on the consultant panel noted that in such a situation, investors would be concerned that the consultant was recommending managers because they would be receiving compensation from those recommendations, while another speaker added that the potential for risk taking was another issue.
One consultant, however, pointed out that such profits were not necessarily a negative. “In some way, it can align your interests with the LPs,” he said. “We demand of GPs that they eat their own cooking and share in the back end in the form of carried interest. So there’s some ways that it can align, and there’s some ways that there will be conflicts as well.”
The “Inquiring Minds Want to Know” Panel was moderated by Eric Lang of the Teacher Retirement System of Texas and included panelists Avery Robinson at Callan Associates; Meagan Nichols of Cambridge Associates; Christy Gahr of Meketa Investment Consulting; Christy Fields of Pension Consulting Alliance; John Papadoulias of Rocaton Investment Advisors; Alex Abrams of StepStone Global; and Michael Stark of The Townsend Group.