Assessing potential managers' investment philosophy and decision-making process serves as a risk mitigation strategy. Allocators aim to gain insights not only into the manager's past investment performance but also how it was achieved, the underlying processes, and its potential repeatability….

Capture and drawdown ratios aid clients in evaluating a manager's suitability. For instance, a retiree seeking a safe and conservative investment manager may prefer avoiding those with frequent, substantial drawdowns. In contrast, a young, risk-seeking investor might be more tolerant…

Selecting a manager involves assessing both returns and risk attribution. The objective is to choose the most suitable manager(s) based on portfolio requirements and limitations. It’s not always about picking the highest-returning manager. Often, the first step is analyzing a…

Candidates may remember their inferential statistics training from CFA Level I. This reading delves deeper into Type I and Type II errors within the context of hiring and firing investment managers. It's important to note that the null hypothesis presumes…

Manager Universe Defining the Universe: What is the set of managers that best fits the portfolio's needs? Suitability: Which managers are suitable/permitted under the IPS? Style: Which style fits? Active vs passive Quantitative Analysis Investment Due diligence Attribution and appraisal:…

Sample Evaluation To evaluate manager performance, practitioners will use: Sample attribution analysis to tell us how the outperformance was achieved. Appraisal ratio analysis to compare Manager A's performance to other managers during the same period. Finally, a combination of the…

Finance academics and professionals have developed several returns-based measures to assess the value of active management. These concepts lend themselves well to testing and show up frequently on exams. Important measures which will be reviewed and/or introduced in this Los…

Finance academics and professionals have developed several returns-based measures to assess the value of active management. These concepts lend themselves well to testing and show up frequently on exams. Important measures which will be reviewed and/or introduced in this Los…

Performance evaluation and attribution require selecting an appropriate benchmark. When benchmarks are mis specified (that is chosen incorrectly), performance measurement will be incorrect; both the attribution and the appraisal analyses will be useless. For example: A US equity manager is…

Alter alternative investments are notoriously difficult to benchmark. The selection of an appropriate benchmark is made difficult by: Lack of high-quality/investible market indexes. Frequent use of leverage. Limited liquidity. Lack of readily available market values. Use of IRR rather than…