Performance and Attribution Trends

March 30, 2011

Last month, Cutter Associates published an interesting piece titled One Step Ahead, One Step Behind: Performance Measurement and Attribution, which discussed such issues as transparency and investor’s increasing expectations that their investment mangers be capable of explaining their performance in greater detail.

The article traces the history behind this movement and credits it partially to the birth of the AIMR PPS, the predecessor to the current day Global Investment Performance Standards known as ‘GIPS’. These standards frame the playing field that investment managers compete on when measuring their firm’s performance against an investment benchmark, as well as against funds with similar characteristics and marketing them to prospective clients. Most investment firms seek to gain “GIPS Compliance”, which is typically verified through an outside third-party verification firm.

The article goes on to cite that in a 2008 Cutter Benchmarking study, 73% of firms reported that their performance team was centralized in the organization, with broad responsibilities from return calculation to GIPS compliance.

Interestingly,  they state that in a similar 2010 study, just 2 years later, just  50% of those firms surveyed have centralized performance teams and that outsourcing these functions is on the rise. The need for more specialized knowledge is driving this decentralization and requiring advanced expertise.

As evidence, I include the following statistic from the CFA Institute, which administers the CFA and CIPM (Certificate of Investment Performance Measurement) certifications:

…According to the CFA Institute, to date, 806 candidates have passed both levels of the CIPM program. The number of candidates enrolled for the October 2010 exam cycle increased by 58 percent when compared with enrollment numbers from April 2006, when the CIPM program was first offered. This marked growth in numbers demonstrates the increased value that professionals in investment performance evaluation are placing on the designation.

It is clear that the continued demand for more frequent and detailed performance measurement reporting, along with increasing demand for attribution of that performance,  will continue and is forcing  managers and vendors alike to customize their operations in order to meet this need.  As a result, we’re seeing particularly strong growth in the outsourcing of these functions.  Are you seeing the same trends?  Are you or your clients focusing on developing core performance capabilities or is outsourcing these responsibilities the new normal?

– Mike Savage, Product Development Manager

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