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Measuring performance for objective based funds


Chris Durack

Chris Durack

Country Head of Hong Kong and Head of Institutional Asia Pacific

An objective based investment strategy is a strategy that specifically targets the achievement of an outcome over a defined time frame, rather than a level of performance relative to some market index.  The outcome that is targeted is usually related to that which an end investor is looking for from their total portfolio – e.g. an absolute or real return.   By way of example, the Schroder Real Return Fund is an objective based strategy that seeks to deliver a return above inflation of 5% p.a. over rolling three year periods.  Often objective based strategies are designed to enable investment across a range of asset classes and in varying proportions in response to prevailing market conditions.  Such strategies are deliberately structured to avoid ‘anchoring’ bias and therefore lack a ‘natural’ or neutral strategic asset allocation.

Given the breadth and discretion of such objective based investment mandates, how should these strategies be monitored and held to account over all periods of time?  In this paper we propose that the inherent design of the mandate itself determines how it should be measured and held to account.  The measures of accountability need to be explicitly identified and linked clearly to the objective the investor is seeking to achieve.  Moreover, they should be designed in such a way as to offer transparency in terms of how the strategy is being managed in order to make an appropriate assessment of the efficacy of the manager and degree of confidence in meeting objectives on a forward looking basis.  We argue that the traditional accountability framework is not appropriate for this purpose and propose an alternative approach.

This alternative approach would also be a more useful framework for assessing traditional portfolio accountability.

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