By Jacopo Trombetta, client reporting & performance specialist at Impax Asset Management.
In a competitive market environment, retaining and growing client relationships is critical and it requires clear and transparent attribution analysis to help clients fully understand a portfolio’s return.
This is one of the reasons why performance attribution has become an increasingly valuable instrument, not only to analyze the ability of portfolio managers or to identify sources of added value, but also to explain a meaningful dialogue between investment managers and their clients.
Over the years, with the introduction and advancement of technological tools and platforms, the performance analysis process has been significantly improved and simplified.
Technology platforms have led to more efficient performance measurement. In fact, a focus on one system to distribute high-quality performance information and to integrate automated, complex workflows eliminates the hassle of managing multiple system vendors. In addition, systems that are cloud-based also boost efficiency. Consequently, the overall operational cost is drastically reduced.
Through such operational efficiency the focus of asset management companies has now shifted to data analysis rather than data production.
Even though good progress has been made, new IT challenges have occurred over the last few years.
With changing market conditions and regulations, systems need to be flexible enough to allow the users to customize attribution models, return types, and composite benchmarks.
Furthermore, the increase in demand from clients for more transparency, more support for digitalization, and greater frequency in information updates has raised the bar for the need for more tailored solutions.
To keep up with such demands, practitioners are therefore required to further enhance their reporting capabilities to meet these expectations. By staying ahead in the developments, technology platforms can ensure their clients — asset managers as well as investors — are best placed.
Like any other performance presentation, a presentation of performance attribution results provides meaningful information only when its assumptions and concepts are clear and unequivocal to the user.
That is why it is crucially important that such a presentation is presented in a way that does not mislead the users and contains all necessary disclosures.
In order to do so, it may be necessary to have standards to ensure that all the relevant details are known and understood by the recipients of the report. For instance, in addition to the standard information normally provided (such as fund name, benchmark or peer name, currency, and period), an agreement on various terms that are normally used with attribution has to be obtained to ensure uniformity.
Furthermore, standard disclosures need to be added to show certain information about the attribution model (such as arithmetic or geometric; holdings or transactions-based), as well as the composition of the benchmark used for the return attribution purposes.
To meet Jacopo Trombetta and learn more about this subject, please attend FTF’s Performance Measurement Europe conference, September 26, in London.