The Essentials of Performance Measurement & Attribution Training Course

Attend this three-day intensive training course packed with numerous practical exercises and gain a comprehensive understanding of:

• The role of performance measurement within asset management firms
• The differences between money-weighted and time-weighted returns and which to use
• What constitutes a good benchmark and appropriate customisation calculations
• Attribution analysis including fixed income, multicurrency and derivative instruments
• The full range of risk-adjusted performance measures including those suitable for hedge funds
• The latest developments in performance standards

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SUCCESSFULLY MEASURING RETURNS:THE METHODOLOGIES AND INDUSTRY PRACTICES

What is Performance Measurement?

• What?
• Why?
• How?
• The performance measurement process

Money or Time-Weighted Returns

• Simple returns
• Modified Dietz
• Internal rate of return
• True-time weighted
• Impact of large cash flows
• The evolution of return methodologies
• Annualised returns
• Errors and typical problems

Practical Exercise 1: Calculate a range of time-weighted and money-weighted returns. Discuss the implications and requirements of large cash flows

BENCHMARKS

What is a Good Benchmark?

• Calculation methods
• Customised Indexes
• Dynamisation
• Peer groups: medians, percentile ranks pros and cons
• Random Portfolios

Excess Returns

• Arguments to use geometric or arithmetic methodologies
• Convertibility
• Proportionality
• Compoundability
• Performance Fees – (good or bad?)

Practical Exercise 2: Calculate a range of customised indices

Attribution Analysis and its Importance to Ensure Effective Measurement Control

• Understanding the breakdown of the portfolio into its constituencies
• Analyse and interpret the contribution of the stock selection and asset allocation from your total return
• The evolution of attribution methodologies
• The Brinson Model
• Interaction
• Arithmetic or Geometric

Practical Exercise 3:Calculate basic attribution effects. Discuss the impact of investment decisions. Debate typical attribution problems

GLOBALISATION OF PRESENTATION STANDARDS

The Most Recent Developments and their Impact on Performance Measurement

• Global Investment Performance Standards (historical background)
• Standards update
• Principles
• Objectives
• Verification
• Governance structure
• Pitfalls
• Why do it?
• 2010 review

Practical Exercise 4: Debate and resolve firm definition, composite allocation and discretion issues for a fictitious large global asset management firm

Risk–Adjusted Performance Measurement

• Simple risk measures
  - Standard deviation
  - Variability
  - Tracking error
• Understanding the ratios and their implications in the performance measurement process
  - Sharpe
  - Treynor
  - Information
  - Jensen's Alpha, Beta, correlation, R2
  - Apprasial
• Return distributions
  - Skewness
  - Kurtosis
  - Bera-Jacque Test
  - Adjusted Sharpe Ratio
• Upper & lower partial moments
  - Downside Risk
  - Sortino Ratio
  - Upside Potential Ratio
  - Omega
  - Variabilty skewness
  - Prospect Ratio
• Drawdown ratios
  - Calmar
  - Sterling
  - Burke
  - Calmar-Sterling
  - Pain & Ulcer Indexes
  - Pain Ratio
  - Martin Ratio
• Value-at-Risk
  - Return to VaR
  - Expected Shortfall
  - Conditional Sharpe Ratio
  - Modified Sharp Ratio

Practical Exercise 5: Calculate a range of risk-adjusted performance measures and use them to evaluate and rank the performance of five portfolios

Practical Exercise 6:Calculate a range of risk-adjusted performance measures for hedge funds

Further Attribution

• Multi-currency
  - Karnosky & Singer
  - Geometic
  - Naïve effects
  - Interest rate differentials

Practical Exercise 7: Analyse and interpret multi-currency attribution including forward contracts and hedged benchmarks

• Smoothing algorithms
  - Carino
  - Menchero
  - Frongrello
  - GRAP
• Other attribution issues
  - Security level
  - Holding based
  - Multi-level
  - Balanced
• Fixed income attribution
  - Why is fixed income different?
  - The Campisi Framework
  - Weighted Duration (van Breukalen)
  - Yield Curve decomposition
  - Shift, Twist & Butterfly
  - Credit spreads

Practical Exercise 7: Analyse and interpret fixed income attribution using the Van Breukalen method

• Attribution for Derivatives & Alternative Strategies
  - Futures
  - Options
  - SWAPs
  - Market Neutral
  - 130/30 funds
  - Leverage

The focus with this course is to improve the way you work and enhance your performance. You will master all of the available methodologies to measure returns and be able to interpret the return of your fund against the benchmark to monitor your results successfully. You will be able to use analysis and benchmarking effectively, implementing risk-adjusted measures and using your appreciation of recent developments to increase the consistency of your results.