The Benefits of Activity Based Performance Reviews: Improving Performance vs. Benchmark

Example 1. Investment Process Improvement


CaseSum1

Pre-review: No Formal benchmarking and assessment of investment activities taking place

Conclusions from performance assessment:
+ Large part of core process working well
– Process complexity prevented evaluation and focus
– Trading activity & portfolio adjustments were detracting significant value from the process

Result was internally agreed process improvements:
+ Process simplification enabled performance focus
+ Performance benchmarks & targets agreed with team
+ Team empowered to ‘beat benchmark’ against strict downside limits, results reported to clients

Performance improved from -12% to +5% over two years. For more information, please contact us.



Example 2. Multi-Strategy Process


CaseSum2

Pre-review: Non-spectacular performance, benchmarking and assessment of investment activities resisted or not objectively applied.

Conclusions from performance assessment:
+ Investment concept attractive but poorly applied
– Process complexity prevented evaluation and focus
– Initial assumptions regarding portfolio managers’ ability to add value to investment process flawed
– Turnover could be reduced without cost to performance

After long review period and incremental attempts:
+ Process simplification enabled performance focus
+ Portfolio manager roles aligned with capabilities; new focus purely on core analytical skill
+ CIO empowered to ‘beat portfolio benchmark’ based on holistic portfolio approach against strict downside limits

Performance improved from -3% to +8% over two years. For more information, please contact us.


Example 3. Active Equity Manager (MSCI EAFE)


CaseSum3

Pre-review: Funds significantly underperforming peers as well as own benchmark. AUM dropping. No activity based assessment of investment activities taking place.

Conclusions from performance assessment:
– Disproportionately high portfolio turnover resulted in commission payments of 2-3% of AUM per annum
– High trading activity was not adding value to performance
– Investments spread over too many stocks (~120) exceeding the analytical capacity of team

Review led to internally agreed process improvements:
+ Reduced turnover led to ~85% reduction in commission payments
+ 60% Reduction in stock holdings improved oversight and investment focus
+ Within 9 months the funds achieved 5th – 11th Ranking according to Morningstar & Lipper

Performance improved from -9% to +4% over two years. For more information, please contact us.