FINANCE: MONEY MANAGEMENT
Date of Submission
Finance: Money Management
Global performance attribution analysis
Attribution analysis can be defined as a complex method undertaken in ascertaining the performance of a fund manager or a portfolio – either local or global. For international portfolios, as asserted by, Allen (1991), decisions on equity portfolios are determined through several kinds of decisions which may include: the choice of the unhedged index controlled by the dollar, choice of security in different countries, overweighting or underweighting of the index based on approximate returns on equity, overweighting or underweighting the index based on expected returns on currency, times for securities sale and purchase, choice of benchmark of portfolio to be hedged against the fluctuations in currency and real-time decisions in currency markets that may result in deviation of portfolio returns from a benchmark that has been hedged passively. As such, there are a lot of factors to consider in attribution analysis that are tied to the ability and reliability of a fund manager or certain investment portfolios.
Importance of benchmarks to the investment process
Mason and Harrison (1996) and Elmuti and Kathawala (1997) claim that benchmarking is an essential venture in the business process as it assists both parties – investors and entrepreneurs – to come to an understanding. The same may be achieved by acquiring knowledge from other parties who may be involved in the same nature of business. Mason and Harrison (1996) further claim that benchmarking, in essence, informal venture capital process has garnered multiple successes where it has been employed. In this regard therefore, benchmarks have proven to be an important process in business where huge multiple global portfolios are involved. Through such processes, all parties will be privy to the risks ad cost benefits thereby resulting in better working and business relationships, and in turn, numerous substantial profits – through learning from others.
Global Investment Performance Standards (GIPS)
Performance standards and valuation of global portfolios is usually done at the same time by firms to ensure that there is a basis of comparison, (Caccese and Lim 2005). While regulations across nations become unrestrictive with time progression, Kline (1993), transnational corporations (TNC’s) are made to adjust their frameworks to incorporate these changes. GIPS are affected in this process as firms are faces with the challenges of constant change. While standards for production change and improve, they are made to spend more in production and/or service delivery than what they initially used. Hedge fund managers in light of such circumstances are forced to assess these situations and come up with solutions for hedging where portfolios are at a risk of getting affected and losses getting accrued.
Investment policy statement
Importance of obtaining certain information from the client
Initial asset allocation policies
Active management style
Allen, G. C. (1991). Performance attribution for global equity portfolios. Journal of Portfolio Management, 18(1), 59.
Mason, C. M., & Harrison, R. T. (1996). Informal venture capital: a study of the investment process, the post-investment experience and investment performance. Entrepreneurship & Regional Development, 8(2), 105-126.
Elmuti, D., & Kathawala, Y. (1997). An overview of benchmarking process: a tool for continuous improvement and competitive advantage. Benchmarking for Quality Management & Technology.
Caccese, M. S., & Lim, C. H. (2005). Revised global investment performance standards: Highlights and recommendations. Investment Lawyer, 12(12), 3-10.
Kline, J. M. (1993). International regulation of transnational business: providing the missing leg of global investment standards. Transnational Corporations, 2(1), 153-164.