Expertise: Performance, Risk & Analytics

Blinded by Pageantry: the Perils of Neglecting Performance Data Readiness

Once the decision to replace an investment performance system has been made, most firms kick off the effort by mobilizing a formidable complement of resources, all charged with a single objective: selecting the vendor(s) who will make it so. Sponsors, steering committees, stakeholders, managers, experts and analysts are convened. RFPs listing thousands of criteria, elaborate scoring schemes, long lists and short lists are constructed. Initial and targeted demos, proof-of-concept, final selection, management approvals and contract negotiations are conducted. Boxes are ticked. This elaborate pageant commands vast amounts of both internal resources and calendar time — once the winner has finally been announced, a festive celebration is held, and backs are patted all around.

by Mark R. David, CFA…

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The Wave of Mandatory ESG Financial Disclosures Has Begun. When Will the Wave Hit the U.S.?

Over the past two years, the world has seen Environmental, Social and Governance (ESG) disclosure requirements grow at a rapid pace, and the first sets of ESG financial disclosures go into effect. Now, a trend of mandatory ESG financial disclosures has begun. From required stress tests in Q1 2022 mandated by the European Central Bank to New Zealand’s new law enshrining a global climate-related disclosure framework, 2022 will go down in history as a period of change. Here, we help investment managers understand mandated requirements and what U.S.-based companies can expect in 2022.

by Andrew R. Jacob, CFA, Consultant…

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COMPETITIVE ASSESSMENT | Meradia

2022 Industry Outlook: Investment Performance

Investment performance teams are under pressure to adapt to economic and market volatility amid rapid industry consolidation, operational outsourcing and technological disruption. When working with institutional asset managers, asset owners, wealth managers, insurers, and asset servicing vendors, Meradia has observed the impact of these trends firsthand. Here, we examine the forces at play and how the industry may evolve in 2022 and beyond.

by the Meradia Investment Performance Practice

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Look Before You Leap: A Risk-Based Framework To Aid Middle- and Back-Office Outsourcing

The consolidation of middle- and back-office outsourcing is gaining popularity across the investment management industry. To date, there have been many debates around the pros and cons of this trend. Whether your firm has already made the decision to outsource or is actively evaluating options, there’s much to consider. How do you know you’ve made the right choice? Have you considered the most important factors? We believe wearing a “special” lens might reveal insights missing in existing discussions, paving the way for a novel method to assess comparable offerings and potentially result in superior outcomes.

by Jose R. Michaelraj, CIPM, CAIA Senior Consultant…

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What is a Performance Book of Record (PBOR), and Why is it Important to Leverage Data as an Asset and Driver of Growth?

The concept of a Performance Book of Record (PBOR) has continued to evolve across the investment management industry. This paper, which was featured in the Journal of Performance Measurement, outlines the state of PBOR today and why it can help firms leverage enterprise data for future growth.

by Richard E. Mailhos, Principal and Investment Performance Practice Lead

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Re-Engineering Karnosky-Singer: Utility, Versatility and Insight for Practical Multi-currency Management

In 1994, Denis S. Karnosky, Ph.D. and Brian D. Singer, CFA published a monograph entitled “Global Asset Management and Performance Attribution” (KS). They presented the idea that – due to the arbitrage known as interest rate parity – some contribution to the total return of a multi-currency portfolio is known, and ‘baked into’ a foreign-currency investment at the time it is made. Because this contribution is knowable and hedge-able, it should accrue to the currency market allocations of the manager – whether or not these are ultimately hedged.

While hugely influential among asset managers globally, these ideas remain largely unexploited in current performance practice. Though KS fully detail an attribution approach based on an expansion of the Brinson-Fachler method, and though this method is implemented in several commercially available performance systems – it is rarely adopted in the field.

We posit this circumstance to have arisen from several causes: misalignments between the paper’s formulation and practical investing reality, as well as inaccurate readings of, and consequently flawed implementations of the attribution method it sets out. We explore these causes in detail, and how they contribute to attribution results that fail to explain portfolio performance, obscuring the otherwise substantial value of KS’ central premise.

Finally, we develop a re-statement of KS that addresses those issues, producing an accurate decomposition of multi-currency effects that precisely explains the portfolio’s performance, while preserving the original paper’s essential insight. We go further to generalize this method and demonstrate its applicability to any investment attribution methodology.

by Mark R. David, CFA, Director of Performance, Risk and Analytics

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What Exactly is a Performance Book of Record (PBOR) and Why is it Important to Next-Level Growth Across the Investment Management Industry?

The asset management industry comprises a diverse group of firms offering countless products, funds and investment vehicles that are traded in forever-evolving financial markets. There was a time when the trading book and accounting book differed by days or weeks and clients received reports quarterly. This is not acceptable for firms today that are facing the need for complex asset administration and daily reporting cycles. Whether a firm invests in public securities or private assets, each come with their own challenges including underlying exposures, lagged pricing or fair value impacts to elicit and compare to a variety of benchmarks.
Today, managers of all investment strategies are compiling massive amounts of daily data. Fund strategies, client holdings, return results and analytics combine to support actionable information for portfolio managers, investment boards, clients and regulatory bodies. Most asset management organizations that support this daily function call it a middle office, and the platform upon which it relies is best described as a Performance Book of Record (PBOR). This paper outlines why developing a reliable PBOR is essential for next-level growth of your investment management organization – growth driven by data and confidence from knowing your organization is taking advantage of all the informational assets it possesses.

by Richard E. Mailhos, Principal

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The Investment Performance Technology Landscape, 2020

What are the key differences between investment performance measurement systems in the market? How are these tools evolving to better meet industry needs? These are important questions for firms considering significant investment in a new or upgraded toolset. Meradia has first-hand knowledge of many of the top systems in the market accrued from direct implementation efforts and have combined this knowledge with product strategy to provide insights on where the industry is progressing and to highlight disrupting themes. This is useful for investment performance professionals as a precursor to an RFP and/or an aid to firms considering a system change.

by Laurie J. Hesketh, CIPM, PMP, Managing Director

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