Improving Performance Measurement for Asset Managers
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User Rank: Apprentice
1/3/2015 | 3:40:58 PM
Data, Measurement, Evaluation
It's important to recognize the hierarchy of investment performance evaluation. It starts with data, like market values and cash flows. Then proceeds to measurement, namely rates of return and risk measures. And then the process culminates with evaluation, making a judjment regarding success or failure. The biggest problems lie in evaluation, primarily because the evaluation tools remain in the dark ages, namely indexes and peer groups. We can & should do a lot better.
User Rank: Apprentice
1/2/2015 | 7:49:37 PM

These are very appropriate comments bringing together the need for a robust platform, reliable data, and appropriate calculations covering both returns and risk. A reliable PBOR is surely what every PM requires as a basis in order to be continually improving their investment process. Your mention of the calculation of "performance at the security level" reminds me of the need for advanced methods for determining daily trade-inclusive returns below the portfolio level that do not fall pray to the flaws perpetrated by all the versions of the Dietz calculations that have been unsuccessfully extended to this circumstance, when they were developed for the fund-level multi-period arena. Some of the other cases for a PBOR that need clearer insights than are standardly imposed concern a) keeping clear the different questions different types of attribution methodologies address, b) being careful annualizing ex-post active returns and risk-adjusted performance measures (since the annualization of an ex-post arithmetic difference is not the arithmetic difference of an annualization), and c) determining the IRR for periods that contain or imply both long and short total market values, as is becoming common for various sub-portfolios of many modern funds.


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