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Alternative Market Briefing

Absolute return performance study shows manager skill best revealed through decision analysis

Tuesday, May 31, 2011

By Beverly Chandler, Opalesque London

Specialist research and performance evaluation firm Inalytics and alternatives managers GLG have conducted a case study which shows that evaluation of every decision a manager makes in managing his or her portfolio gives a reliable measure of skill.

In Analysis of Management Skill, Inalytics’ Rick di Mascio and GLG’s Simon Savage refer to a study of school pupils in the US which found that high school grades are the most accurate predictor of achievement in the first year of college. However, the report observes "In our industry, intuition does not correspond with reality as a good period of performance is just as likely to be followed by a poor one."

The problem, according to the report, is that most institutional managers choose their managers based on their past performance, and while the Inalytics database shows that skills does exist, it doesn’t appear to be captured by looking to the past track record.

"Accepting that Managers have skill, but it is the tools used to find it that have let us down, requires a radical change in the way we go about evaluating Managers. By turning away from track records, and towards an evidence based approach that analyzes every decision a Manager takes to identify their real strengths and weaknesses, we have found the framework we are seeking" the report says.

This framework relies on analysing every purchase, sell and every decision to include or exclude a stock in a portfolio whic......................

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