Performance Measurement

One of the more important aspects of investment solutions centers on measuring a plan’s overall performance as well as the performance of its individual managers. Our investment performance services evaluate:

  • Overall market and economic conditions so that results may be put in perspective
  • Strengths and weaknesses of the total fund and of the fund's individual managers' investment judgments
  • Risk and return metrics of asset-class composites and individual investment managers
  • Contributions of individual managers to fund goals
  • Execution of investment policies and objectives, as well as manager compliance with guidelines

In monitoring the total performance of a plan, we ensure that the portfolio is appropriately structured to meet the client’s investment goals without exceeding the risk tolerance. We help our clients by:

  • Performing a close examination of the total portfolio’s composition and its return characteristics on a variety of levels
  • Examining the allocation of assets among the plan’s asset classes, investment managers and investment styles to ensure that the weighting of plan assets complies with directed guidelines
  • Comparing the plan’s performance relative to a benchmark of blended market indices, which corresponds to the composition of the client’s total plan to evaluate the quality of the fund’s returns in relation to the performance of the applicable financial markets
  • Evaluating the effectiveness of the plan’s structure through performance comparisons with plans of similar investment composition and objectives
  • Analyzing and comparing the risk characteristics of the total plan’s performance against that of peer funds and market indices to ensure that the variability of returns does not put the portfolio at risk of failing to meet its funding requirements

The analytical process employed when evaluating the performance of a client’s individual investment managers is similar in philosophy to our examination of the total plan. However, we also use in-depth analysis focusing on the investment characteristics of each manager’s portfolio to confirm that investment policy guidelines and restrictions are being followed.

Performance Evaluation

Our performance evaluation process documents the risk of each portfolio based on its holdings as well as a returns-based assessment of volatility, information ratios and consistency of style. To generate the maximum value for a given level of risk, we combine quantitative, holdings-based risk analysis for equity portfolios with the Research Group’s documentation of the managers’ investment styles, typical risk postures and levels of skill. By examining the actual securities held by a particular manager, we are able to identify the areas of risk within a manager’s portfolio and the sources of return at any single point in time. We can also compare the portfolio’s risk structure over various time periods.

We conduct performance attribution, which helps us understand the reasons behind a manager’s performance and whether the manager’s performance is consistent with their stated style and expertise. We test a manager’s performance over time to assess whether the manager’s investment process has historically generated value through the risks it has taken. Our risk characterization and attribution analysis allows us to determine what types of risks are normal, desirable and likely to represent value creation opportunities.