With the recent volatility in the global markets, proving Alpha to your customers has likely taken on a renewed focus. Some clients may be asking how the instability in Asian markets is negatively affecting their portfolio. Others may view volatility as a buying opportunity and want to know how much they have gained since doubling down in Asia. Still others might be questioning their need for active management and asking you for their YTD results vs. their targeted benchmark. In these cases and others, proving alpha to your customers is a vital part of the Performance Analyst’s role within any organization. Just as vital is the ability of your performance application to prove the Alpha you’ve created for both your customers and your internal clients.
As a Performance Analyst, you’re often called upon to provide a wide range of performance results, with detailed explanations when these results don’t meet expectations. With this in mind, does your performance application help you or hinder you?
In my previous post, I explored the notion of “data quality and automation” in your performance application. In this post, I’ll explore the two ways your performance application should help you identify Alpha – aligning the results with your investment process, and quantifying the decisions your portfolio managers make on behalf of your clients.
1. Aligning Results with Your Investment Process
You ask your performance application to adapt to all styles of portfolio management – from currency overlay strategies, to long or short strategies, to simple sector overweighting. It must support benchmarks ranging from simple to complex, and not only conform but anticipate the shifting strategies of Portfolio Managers and your clients. Does your performance application measure up?
Your performance application must allow you to pinpoint exactly which actions contributed to Alpha and both identify and demonstrate the performance of individual sectors and securities to customer and Portfolio Managers. It must trace Alpha back to a specific day, a specific trade, or a specific bet. It should zig and zag, pivot on its head, and react to the most recent market news. It should do all of this proactively, and provide the results, like, yesterday.
2. Intuitively Exploring Your Results
What happens when you receive an email from a Portfolio Manager that reads: “my return doesn’t look right, can you check it out?” Although a seemingly simple question from their perspective, the amount of work required to answer their inquiry most likely has just ruined your day. In many cases finding this proverbial needle in the haystack can be daunting, but it needn’t be.
Your performance application should provide you with context as well as data. Too often, the presentation of performance and attribution results is flat; two-dimensional. Instead, your performance application should anticipate your needs. Your performance application should allow you to view a portfolio, its holdings and transactions, its contribution to return, its profit and loss, and its attribution results – all seamlessly stitched together into a cohesive story. It should provide a path to your answer and empower your analysis, rather than stand in the way. If it doesn’t, we can help.
Performance applications have been designed to measure Alpha from the beginning, but the second step of proving Alpha is more elusive. Performance applications are notoriously data intensive, and uncovering the exact reason for over or under performance versus a benchmark enables sales, client services, and marketing teams to continue to exceed your clients’ expectations.
Your performance application should enhance your investment strategies and help you to better service your clients, while maintaining high levels of security, risk management, process control and operational scale.
If you’re not confident that you’re getting what you need, perhaps it’s time to speak with BI-SAM.