Measure Performance on Consistent Basis to Stay on Course
The periodic review of an investment management strategy requires the measurement of the portfolio performance against the benchmarks established in the investment policy statement. On either a quarterly or annual basis, an analysis and report should be generated and communicated to the client. The reports will address the some of the following issues:
- Current asset allocation model consistent with investment policy statement;
- Money manager performance compared to index and peers group;
- Does current asset allocation hold highest probability of meeting goals and objectives;
- Current goals and objectives should be modified;
In the event, a portfolio has an money manager in an asset class that has experienced poor performance for consecutive quarters, then it is prudent to engage in a due diligence process review. The due diligence review will provide answers to some of the following questions:
- Has there been a change in the management team?
- Has the firm experienced recent legal or regulatory problems?
- Has there been a change in the amount of funds allocated to cash?
- Has there been an increase in the portfolio turnover rate?
- What is the performance relative to the appropriate benchmark or peer group?
- Is the risk-adjusted performance below the peer group over extended periods of time?
Measure your investment management strategy performance on a consistent periodic basis and get rid of those asset managers who don’t perform, in order to stay on course. Like navigating a ship at sea, the prudent captain takes as many bearings as possible to triangulate an exact fix towards True North.
