Traditional performance monitoring reports do more harm than good. They encourage an excessive focus on performance data and contribute to procyclicality in decision-making by asset owners and managers. Minor tweaks to the existing approach are unlikely to achieve very much. Instead, a more fundamental re-think is required.
Tell Me MoreBy treating diversification as an unmitigated good, investors by and large ignore the damage that it does to returns. We would do well to channel Buffett who once remarked that “diversification is protection against ignorance; it makes little sense if you know what you’re doing.” The outcome of an obsession with benchmark-relative performance together with principal-agent problems is “defensive diversification”.
Tell Me MoreThe externalities of greatest interest in contemporary discussion typically fall under the E, S and G headings. However, this leaves a critically important externality – that of asset mispricing – largely ignored. Asset owners should broaden their awareness of the externalities that arise from their investment approach.
Tell Me MoreOne of the recommendations emerging from the recent CMA review into the investment consulting marketplace is for greater transparency around fiduciary manager performance. The resulting proposal has garnered almost universal support, but may create some damaging unintended consequences.
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