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…

SAMURAI The choice of benchmark often has a significant effect on the assessment of manager performance. Investment managers should be compared only with benchmarks that reflect the universe of securities available to them. A valid benchmark must satisfy certain criteria….

The seven types of benchmarks introduced in this section are Absolute (including target) return benchmarks. Broad market indexes. Style indexes. Factor-model-based benchmarks. Returns-based (Sharpe style analysis) benchmarks. Manager universes (peer groups). Custom security-based (strategy) benchmarks. Absolute Return Benchmark An absolute…

Liability-based benchmarks are created from the perspective of cash flow needs. The cash flow needed from the assets in order to fund a future liability is the focus. Using this metric, managers can see how much of a particular liability…

Results Attributable to the Investment Manager Those results due to the decision of the investment manager are also known as Micro attribution. This analysis involves understanding the drivers of a manager's returns and whether those drivers are consistent with the…