The purpose of this course is to give you a good understanding of tools and methods for measuring, evaluating and attributing investment performance.
We start with a discussion of the role of performance measurement in the investment process and of the importance of performance evaluation to fund sponsors and investment managers.
We then review various measures for computing rates of return, including money-weighted return, internal rate of return and time weighted return. We also discuss practical challenges such as obtaining and validating internal as well as external data.
Further, we present and explain various measures of risk-adjusted performance. These include traditional measures such as Treynor Index and the Sharpe Ratio, and newer and more sophisticated measures that take into account the increasingly asymmetric nature of return distributions. We also calculate and interpret the information ratio and other benchmark-relative measures.
Using attribution analysis, we then explain and illustrate how investment performance can be decomposed into “policy” and “active management” contributions. We also discuss the use of return-based style analysis in distinguishing between active managers and passive managers. Using multi-currency attribution analysis, we show how the currency contribution component can be calculated and interpreted.
Finally, we introduce and discuss the Global Investment Performance Standards (GIPS®). We identify and explain the requirements of each of the five main topics of the GIPS standards: input data, calculation methodology, composite construction, disclosures, and presentation and reporting. We also discuss the reporting requirements for sophisticated clients that have needs that go beyond GIPS.
Finally, we present various systems for calculating performance-related fees and we discuss the possible advantages and pitfalls in using such systems to align the interests of the manager with those of the investor.
Global Investment Performance Standards™ a GIPS® jsou registrovanými ochrannými známkami CFA Institute