Identifying A Sponsor’s Impact on Total Returns Performance Attribution for the Total Portfolio
Introduction
Performance attribution is a well-recognized quantitative approach to identifying the outcome of investment decisions. Sponsors of pensions, endowments, and foundations view performance attribution as an important tool in their investment manager due diligence process.
However, an investment manager’s decisions are nly part of a plan’s success; the sponsor’s own decisions also weigh heavily, but very few sponsors are able apply performance attribution to their own decisions. Also known as macro or balanced attribution, total portfolio attribution enables sponsors to:
Identify the performance attributable to the strategic asset allocation policy
Examine the outcome of deliberate deviations from policy weights
Measure manager-picking skill in aggregate, or by asset class or investment style
This paper will discuss the methodology for conducting total portfolio attribution and outline seven critical challenges sponsors must consider when evaluating their options.