Five Aspirations for Performance Analytics

Posted by William Haney, CEO, BISAM on May 12, 2015 6:37:00 AM
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With spring in the air in the northern hemisphere, a real sense of optimism abounds -  moreso in the asset management industry which appears to be entering a sustained period of growth after the credit crisis.

Equity markets have once again reached the heights of the 1990s, and most economies are well on the road to recovery from the global financial crisis of 2008. There is renewed hope in many quarters about investment growth and the green shoots of recovery can be seen in the asset management industry despite the brush fires of Greece, China growth concerns and the uncertainty over inflation.

But the industry is not simply reverting to what and where it was in the early years of the last decade; far from it. Today’s asset management industry is very different to the one we knew 10 years ago. Asset management is now a dynamic and global industry and the pace of change accelerates year on year. There is no room for complacency.

The need for change is particularly strong in the area of performance measurement and analysis. Here at BI-SAM we have put a lot of effort into taking stock of the industry, identifying where change could and should be driven into the working practices of performance analysts.1

Based upon this reflection we have identified five aspirations for the “performance industry” - five areas in which we should all work together to change the way in which investment performance is measured and analyzed.

Aspiration 1 – eradicate manual processing

There can be little justification these days for the high level of manual processing that is still seen in many firms, particularly when it comes to performance measurement. The performance measurement technology that is available today is powerful enough to remove the need for manual tasks in all but the most complex aspects of performance analysis.

Aspiration 2 – provide new insights into the sources of alpha

Much has been done over the past 10-15 years to bring more rigor to the analysis of investment performance, but we are still behind the curve.  Strong analytical methods have been implemented to identify the sources of alpha in the management of equities yet the industry has been less successful in the area of fixed income, exotic instruments and illiquids. The pace of change in the industry is moving firms quickly in the direction of goal-driven investment strategies, so innovation in the analysis of performance must match this trend. This can be done by developing analytical techniques that are no longer focused solely on a comparison of a portfolio return with that of an index-based benchmark.

Aspiration 3 – leverage digital distribution channels

The strategic challenge for performance analysts is no longer associated with the calculation of performance analytics. Industrial-strength systems that can calculate a wide range of analytics consistently and reliably have existed for many years. The strategic challenge now is to get those analytics to all the people that need to see them, when they need to see them and how they need to see them. And to do so in a way that gives everyone a sense of consistent confidence that the analytics are accurate. Combine this with digital distribution and mobile technology to define a new way of serving the client.

Aspiration 4 – empower performance analysts to deliver more value

Many performance analysts are still distracted by the need to collect and cleanse source data needed to accurately calculate performance analytics. This is a key responsibility that if not done well will generate performance analytics that do not inspire confidence. Why then, in 2015, do performance teams still wrestle with incomplete, incorrect and inconsistent data? It’s time for asset management organizations to really embrace this issue and reduce the operational overhead that is holding them back from delivering confidence in their analytics and reports.

Aspiration 5 – create a best practice culture

We should have an attitude in performance analytics that anything less than best practice is simply not good enough. Performance teams do not directly generate alpha but their analytics can add much to the investment process and provide meaningful explanations to asset owners about why their investments are performing the way they are. Trust and transparency are now more strongly aligned in our industry than ever before. Performance measurement and analysis should be a core competency.

At BI-SAM we feel very optimistic about the industry’s prospects for realising these five aspirations and are working to make them a reality.

1 2014 Investment Performance Practices & Trends Survey - 08.01.2015

Topics: Performance & Attribution

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