A couple of months ago, Peter Ellis, renowned PMAR expert and valued advisor to BISAM, took the decision to retire at the end of this year. Or as he put it, “it’s more of a semi-retirement, as I will continue to advise the industry here and there.” We will miss Peter’s insights and contributions, but we are pleased for him and wish him well on his adventures in retirement. In the following post, Peter reflects on his time at BISAM and the ever-evolving performance and risk industry, and offers words of encouragement for the future. I hope you enjoy reading it as much as I did. And now, here's Peter...
A Message From Peter Ellis
Due to my impending retirement, and given that we are at the time of year where it is traditional to look back at what we have achieved and to frame our hopes and aspirations for the year ahead, I thought I’d share some thoughts with the BISAM community and encourage a bit of conversation.
A Look at How Things Have Changed Over the Past Five Years
Two main areas of change stand out for me. First, back in 2011 performance systems were viewed as very difficult to implement. There isn’t anything inherently different about the way that performance systems should be implemented; the generic best practice for system implementation works just as well for performance systems as it does for any other type of system. But performance systems are less forgiving if you stray off the path of implementation best practice. With performance systems there are no quick fixes if you try to take short cuts and get into difficulties; quite the opposite in fact, as you are very likely to end up right back where you started – a lesson Asset management organizations have learned and now heed.
Second, in 2011 asset management organizations were struggling to make fixed income attribution work in practice; that’s no longer the issue that it was. Performance teams have learned that you don’t make fixed income attribution work in practice by following exactly the same business processes as you follow to make equity attribution work. In particular, you need a very different approach to data management. As a matter of fact, this is a hot topic that my BISAM colleagues and I have often tackled right here on the BISAM Insights blog (read more here: http://blog.bisam.com/topic/fixed-income-attribution).
The Renaissance of Performance & Risk
In some ways, I am leaving the industry at the wrong time because I believe we are about to enter a renaissance period for performance and risk, driven by the shift of the investor perspective to outcome-oriented investment objectives.
The investor perspective of risk has shifted from a relative one (the risk that I could do better by investing somewhere else) to an absolute one (the risk that my investments won’t generate the wealth that I need to meet my future needs).
The investor perspective of performance has also shifted in a similar way, from historical comparisons with benchmarks to current assessments of whether investments are on track to deliver target values by target dates.
Performance teams have been living in a largely ex-post world, but investors live in a largely ex ante world. That disconnect has become a bigger issue over the past five years. Many of the techniques that performance teams currently use were developed in a different age: an age of lower volatility when investment objectives were expressed in terms of out-performing a benchmark.
Over the next few years we will see performance teams evolve. Ex post measurement and analysis will remain a key function of performance teams, but it will play an additional role by feeding into ex ante, value-based assessments of performance & risk. It should be a fascinating time for performance analysts as they adapt and develop new techniques, and for system vendors as product roadmaps for ex ante and risk converge with those for ex post and performance.
Bon Courage Mes Amis
My belief that we are at a fascinating crossroads for performance and risk did not make it an easy decision to retire. But I’m 60 now, I have my Senior Railcard, and it is time to hang up my spreadsheets and do a bit of silver backpacking.
I will definitely be keeping a sneaky eye on how things develop over the next few years. It’s going to be a very interesting time for people working in performance & risk. In the meantime, if I may borrow a title from the Hitchhikers Guide to the Galaxy series, “So long, and thanks for all the fish!”