Investment Benchmarking: PeerTrac Analysis


What Would You Do If Your Equity Manager Underperformed His Benchmark by Five Percent?

We've found that most investment boards have not considered this critical investment oversight question......and if you don’t know at what point performance will cause you to take action, you’re just going through performance review motions.

The problem with comparing performance solely to index benchmarks is that you never will have enough
data to determine when underperformance is significant.


Either:

1. Managers may be terminated needlessly, at significant cost;


or,

2. No action will ever be taken -- in which case why even evaluate performance?.

 

“Evaluating investment performance solely against market indexes is the equivalent of believing you have insurance when you don't.” 

 

Short version

 

Detailed version


 

PeerTrac Exhibits

 

Investment Oversight Article

Effective benchmarking provides sufficient information to determine when corrective action is necessary.

Indexes are valuable components of the benchmarking process, but by themselves are not sufficient. Simple index comparisons lack the context required to draw meaningful conclusions.

Because indexes provide only a single comparative data point for each time period, it takes decades* to determine with any statistical meaning whether or not an investment manager has positive or negative skill. So by the time you have enough data to reach a conclusion, it's far too late.