Published by ASAE in November 2010
As the capital markets have become more complex and less transparent, the amount of risk inherent in a portfolio becomes more and more important - and harder and harder to measure. The need for simple benchmarks that account for the level of risk in a portfolio has never been greater.
Such metrics bring clarity to performance reporting and effectively hold advisors and managers accountable for their results. The challenge associated with accountability is particularly relevant in an environment where advisors often set the benchmarks against which their performance is measured, and prepare the reports that are used to understand their results. If you didn’t trust your advisors you wouldn’t be working with them. Trust, however, is not an internal control.
This article, and accompanying worksheet, seeks to provide a framework for understanding and executing a simple, powerful portfolio benchmarking process.