Accurate Benchmarking is a Forgotten Art: Back to Basics

Accurate Benchmarking is Gone but Not Forgotten:
The Imperative Need to Get Back to Basics



Synopsis
Investment performance evaluators have lost touch with a basic and self-
evident truth: If the benchmark is wrong all of the analytics are wrong. The
cost of this mistake is high because investment managers are hired and fired
for the wrong reasons, sacrificing performance and fees. It’s imperative that
we get back to basics, that we get the benchmark right. Fiduciary prudence
dictates best practice over common practice despite popular opinion to the
contrary, as does the “do no harm” rule. Indexes and peer groups are the
common forms of benchmarks. These are not best practices. The article
describes how accurate benchmarks can be constructed from indexes and how
peer group biases can be overcome.



Ronald J. Surz, 78 Marbella , San Clemente, CA 92673, 949/488-8339 (fax
0224), Ron@PPCA-Inc.com is president of PPCA, a software firm providing
advanced analytics, primarily to financial consultants, for performance
evaluation and attribution. Mr. Surz is also a principal of Risk-controlled
Growth LLP, a fund-of-hedge-funds manager. He is active in the investment
community, serving on numerous boards, including the CFA Institute’s GIPS
Investor/Consultant Subcommittee and After-tax Subcommittee, the
Investment Management Consultants Association (IMCA) board of directors
and standards committee, and several advisory boards of financial ...