Appraise the merit of your asset managers

"Am I supposed to be happy with the performances of my asset managers? Did they do well? How can I appraise their achievements objectively?" These are some of the questions you may ask yourself from time to time. Here is a suggested methodology.

First step : ask yourself this simple question : have my goals been achieved? The answer to this question clearly comprises two conditions :

  • That your primary goals have been previously and quantitatively defined with your managers. Example : achieve a minimum annual return of 2% above the average 3-month interest rate ; or achieve an annual return of a minimum of 4% ; or achieve an excess annual return on the DJ EuroStoxx 50 index.
  • That a minimum period of time has elapsed before any evaluation takes place, usually between 6 months and 1 year.

Second step : ask yourself if your managers have performed well compared to other managers or mandates.
For example, if your objective was to reach a return of minimum 4%, if your manager’s return was 4,5% and if most of the comparable mandates were above 7% due to the favorable evolution of the yield curve during that period, there is good reason for you to be dissatisfied.

Third step : ask yourself if performances have a good chance of being sustained in the future (provided that they have been good, of course). This raises the question of the risks taken by the managers to achieve the delivered return. Has the return been achieved with an extremely high risk? If so, the next period could prove to be disappointing. Also investigate where the performance came from, and ask yourself if the sources of performance are sustainable. This requires regular and close contacts with managers.

If you would like more information on this please don’t hesitate to contact us.

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