Performance Measurement & Analysis

Addressing question including: How do we measure results? Do we use internal or external resources?

Once a custom benchmark is in place that properly focuses the manager on achieving higher risk adjusted income for the company, his or her performance must be measured and monitored.

How would you answer these questions about your investment manager:

  1. How often does the manager communicate with your company? An external investment manager should function as if he or she was located just down the hall, communicating as often as you would expect from an internal department.
  2. Have you agreed on one or more benchmarks that the manager will be judged against? Part of good communication is having mutually agreed upon goals and then measuring performance against those goals.
  3. Your manager tells you he beat the index. Do you know why? Too many companies are satisfied because their manager beat a generic index or a group of generic indices. Your manager should be able to tell you why they beat the index.
  4. Exactly how is the manager adding value and how much?
  5. What must the manager do in order to consistently beat the benchmark?
  6. Is the manager staying within the investment policy? Why or why not?
  7. What strategic or other issues must be considered and dealt with in order to improve the company’s investment performance?

Key Benefits

  • Determine why the manager is or is not beating the benchmark. This is done using performance attribution software that allocates a manager’s over or under performance to different reasons, such as guessing on interest rates, choosing the right securities, or investing in the right sectors.
  • Keep the manager focused on your company’s strategic goals. We are continually amazed at managers’ fascination with explaining macroeconomic variables. Don’t we have enough sources of that information? What is more important is understanding how the manager is achieving your company’s goals.
  • Stay focused on the three most important factors of investment management. Performance, performance and performance.