Discussing Performance Attribution at the 2015 Client User Forum

Discussing Performance Attribution with BMS Experts 
Senior Project Manager Jonathon Wu led a breakout session with clients about the latest features of Black Mountain’s performance attribution module.

“Performance attribution is a better way to test a manager’s ability to originate strategies.”

As the analytical comparison of a portfolio’s performance to a benchmark and the breakdown of its excess return to a range of “attributes,” performance attribution is sometimes known within the industry as “investment performance analysis”. This process of distilling the excess return into its sources is a tool for portfolio managers to assess their individual investment decisions more critically and accurately.

Black Mountain’s performance attribution functionality is highly sophisticated. It allows managers to load their own benchmark data into the system, usually from data providers like Bloomberg and Factset, and track returns. Everest enables users to break performance down by segment and view the results of investment decisions, sorted by asset type, rating, industry focus, as well as other custom classifications. The performance attribution feature can also compare multiple funds and look at how much certain industries contribute to overall fund returns, irrespective of the selected benchmark. To enable up-to-date analysis, Everest refreshes data from the back office each day to provide a view of current results. It also uses geometric linking of returns based on daily trade data and can be accessed through any web browser. To see a sneak peek of this module, click here.

Performance attribution is a sophisticated way of evaluating investment decisions.Performance attribution looks at how funds perform relative to a benchmark.

Performance attribution as both a marketing tool and a strategy tool
Based on the discussions in the room as well as his knowledge of general client usage, Wu acknowledged that most clients currently leverage Black Mountain’s performance attribution module as a marketing tool to attract future investors than as a strategy tool to inform current investment decisions. The Client User Forum provided an opportunity for clients to share their current methods of performance measurement, be it Excel or an internally-built platform, and for Black Mountain to demonstrate specific features live and to consider new ways to facilitate the module’s wider adoption for strategy purposes.

One under-utilized feature shown during the session, for instance, was Everest’s Effects Dashboard, which gives asset managers the ability to test effects of certain weightings on particular funds in comparison to a synthetic index. This aspect of Everest allow firms to run multiple scenarios and adapt their strategies on-the-go. Additionally, when a client asked about the capability of making backdated changes, co-CEO of Black Mountain, Kevin MacDonald, noted that the tool that can be scheduled to recalculate returns based on any designated time period from one month to five years.

As a tool, performance attribution has strong potential to empower firms to originate more successful investment decisions in addition to delivering value as an effective method of marketing investment performance track records. As Black Mountain’s Performance Attribution module matures and becomes more well-known within the client community, validated by feedback received at this year’s Client User Forum, it will likely see increasing adoption and active engagement over the next several years.