Rethinking investment strategies
There is an emerging view from people in the investment industry that the idea of using benchmarks to monitor performance are getting past their use-by date and a new approach is needed.
Thursday, March 31st 2005, 7:03AM
Watson Wyatt Sydney-based senior consultant Sean Henaghan says benchmarks were invented by consultants as a way of measuring performance and having some accountability over the managers.
Originally they achieved these aims but now there is decreasing efficiency and “ over-emphasis on the benchmark is institutionalised in behaviours.”
Another to push a similar line is Credit Suisse’s London-based vice chairman Robert Parker.
His message to a financial planning conference in Sydney earlier this year was that “the old game has gone and it is time to change.”
He suggested that funds management and the way portfolios are put together has to change.
Parker said that managers’ devotion to benchmarks meant there is little dispersion between performances.
Heneghan said there was too much money invested in benchmarks.
These views on benchmarks are leading investment professionals to rethink their asset planning cycle.
Part of the classic cycle involved a number of stages, namely; strategic asset allocation, then benchmark design, followed by manager structure then selection.
Heneghan talks of the “new balanced cycle” where these four stages or compartments are put together and outsourced.
He says the ideas is “quite a different model to what we are using today.”
Judging by feedback from Henaghan’s presentation the concept is gaining acceptance amongst fund managers.
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