Performance attribution has become one of the hottest areas in performance measurement. It is an investment manager's calling card. Attribution has become a standard part of the portfolio manager's analytical tool kit, providing insights into what is working and what is not. It provides a way to communicate where the returns have come to clients. And it gives the investment group important information on the results of their investment decisions. In today's current business climate more scrutiny than ever is being made on investment performance and understanding attribution is crucial.
Attribution, by itself, isn't a new concept. People have engaged in attribution analysis for many years; probably centuries. Many individuals are trained in attribution analysis, although they may not know it. For example, when police officers come upon a car accident, they will often conduct an analysis to determine the cause(s) of the accident. Similarly, firefighters typically conduct investigations after a fire to determine the cause. Sports teams regularly engage in a post-game analysis as a way to determine if their strategy was successful or not.
So, how do we analyse the effects of investment decisions? We employ models. Models are mathematical formulae which take into consideration various characteristics of the portfolio and its related index to both reconcile to the excess return as well as to apportion the excess return across two or more of our effects. Our experience and research have shown that the two most popular models for equity attribution were developed by Gary Brinson, along with various co-authors.
Advent is offering a white paper written in conjunction with David Spaulding, an internationally recognised authority on performance management, which will give you a strong grasp of the fundamental principles of attribution as well as a practical understanding of how it can be used in performance measurement.