Un­cov­er­ing the lay­ers of noise that mask man­ager skill

Finweek English Edition - - Property Compass - Anne Cabot-Al­let­zhauser Ad­van­tage As­set Man­agers

I RE­MEM­BER ONCE ‒ 15 years ago ‒ be­ing asked by a fi­nan­cial jour­nal­ist whether the in­vest­ment in­dus­try couldn’t just come up with a nice sim­ple mea­sure to as­sess man­ager skill. Two things are re­mark­able about that re­quest. First, to give the jour­nal­ist some credit, was the fact he recog­nised that sim­ply looking at a man­ager’s per­for­mance rel­a­tive to a bench­mark or even his peer group pro­vided lit­tle in­sight ‒ even if we could dig up a long enough track record to en­sure some sta­tis­ti­cal sig­nif­i­cance. The sec­ond is that the re­quest was made 15 years ago and we still, as an in­dus­try, haven’t made much progress in de­liv­er­ing on that re­quest.

That said, at a re­cent global round ta­ble for the CFA In­sti­tute (the world­wide body that over­sees as­set man­age­ment qual­i­fi­ca­tions and train­ing) much was made of the fact that, while sim­ple mea­sures of skill still elude us, we now un­der­stand more than ever about what drives per­for­mance and how much “noise” ex­ists in per­for­mance num­bers. Iron­i­cally, the more we un­der­stand or “peel back” the more ap­par­ent it be­comes as to how lit­tle in­for­ma­tion there is in per­for­mance num­bers as a proxy for man­ager skill. Note that I haven’t said man­agers aren’t skil­ful ‒ it’s just that per­for­mance num­bers do lit­tle to re­veal its ex­is­tence.

Now pause for just a sec­ond and con­sider how much value has been de­stroyed glob­ally by in­vestors chop­ping and chang­ing man­agers be­cause they didn’t un­der­stand that crit­i­cal fact. Trustees, in­vest­ment com­mit­tees and in­vestors owe it to them­selves to get a bet­ter han­dle on the facts. What fol­lows is a com­pen­dium of fresh in­sights about per­for­mance that have emerged over the past few years. Most bench­marks in SA or mar­ket-cap weighted bench­marks pro­vide poor yard­sticks against which to man­age the skill There are two dy­nam­ics at work

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.