PMARs 2011 Shaping up to be the best ever!

The Spaulding Group's Performance Measurement, Attribution & Risk (PMAR) North America conference returns to Philadelphia this May. We are on track for a record attendance. 

And after last year's very successful launch of PMAR Europe, is there any doubt that we will return to London in June? And like the Philadelphia event, this one looks like it will be a record attendance, too!

As you can see, we're going "all out" to promote these events!

We guarantee you'll learn a great deal and have a great time, too! So make sure you're at one (or both) of these unique events! You'll agree with past attendees that PMAR will be like no other conference you've ever attended.

Image source: PhotoFumia.com

Love Story's link to the world of investing...who would have thought?

If you're old enough you may remember the 1970 movie Love Story, that starred Ryan O'Neal and Ali MacGraw. While today's movie-going audiences would probably not find the movie very appealing, it did meet with a great deal of success four decades ago. One of the most unforgettable lines was uttered by both of these actors: "love means never having to say you're sorry."

And while we might debate the wisdom of this proclamation, one of our verification clients, Daruma Asset Management's founder and CIO, Mariko Gordon, uses "Love Means Always Having to Say You're Sorry" as her March newsletter's headline. She points out that we make mistakes (who doesn't) and it's okay to admit them. I think an investment firm's clients appreciate a manager who can not only acknowledge a mistake, but also identify its source, as it demonstrates that they have their finger on the pulse and know what's happening in their clients' portfolios. As Mariko points out, "our mistakes are calculated in real time and down to the penny, blinking red on [our] computer monitor for extra emphasis."

Mariko also wrote that "In the financial world, investors performing due diligence may ask about investment mistakes, but they often do so in an anecdotal way. They're more interested in specific examples of mistakes rather than assessing how mistakes are tracked, analyzed and dissected. Personally, I think it's more useful to ask the question broadly and see what sorts of mechanisms firms have to systematically track and learn from mistakes." (emphasis in original)

When it comes to mistakes, the GIPS(R) (Global Investment Performance Standards) of course have a (recently revised, thank you very much) guidance statement on error correction, which deals with some of the categories of mistakes firms encounter.

I encourage you to read Mariko's newsletter. Her practical and sound assessment and discussion of this topic is one that all should find interesting and insightful.

Let's stop celebrating GIPS as the only answer to our return questions

I recently wrote a letter to Pensions & Investments, which was published in their February 21 issue. Titled "Flaw in time-weighting return," it was a response to an earlier P&I article that discussed how plan sponsors need to ensure they're using the right benchmarks. And while I agreed that having the correct benchmark is critically important, it's even more important that plan sponsors employ the correct return methodology. I'm sure that you're not surprised that I was advocating the use of money-weighting for the plan to understand how they are doing, separate from the use of time weighting to see how the manager has done.

I posted the piece on Linkedin, and it has engendered a fairly lengthy discussion in one of the groups. Not surprisingly, there still seems to be interest in relying on what GIPS(R) (Global Investment Performance Standards) has to say, when the standards do not speak to client or in-house reporting. And I am not advocating that the standards should. But it's important that we recognize where the standards begin and end, and it all has to do with what a manager gives to their prospects.

In a recent animation, which I posted here earlier this week, I touched on the frequent use of time-weighting and suggested that one of the reasons is that this is just the way we've always done it. Obviously, this is a topic I have a lot of passion about. If this was an idea that had little chance of succeeding, I would have given up some time ago; however, we are making progress in educating folks, as evidenced by some of the Linkedin comments. But that being said, I will try to be "mum" on it for a while, as there are lot of other things to address.

The last 10% & Mulligans

I am confident that anyone who has been involved with the development of software will agree that the first 90% of a project is much easier to accomplish than the last 10%; the balance sometimes takes "forever!" Even husbands who take on home projects often get 90% of it done, with a plan to finish the rest, but simply never get around to it. Well, the same issue seems to apply to writing books, as getting most of the work done is much easier, at least to me, then the balance.

Case in point: the second edition of my third book, The Handbook of Investment Performance. I got the transcript wrapped up in relatively quick time, but the editing, layout, etc. seemed to take much longer than we had planned. And as we neared the "finish line," I got an email from someone from CalPERS who had some corrections to errors he discovered: talk about perfect timing! For this I was quite grateful, as I had overlooked some of them in my review. Well, the wait is almost over and the book is at the printers, with a delivery date fast approaching.

The book has served as a "Mulligan" for me. If you're not a golfer you may not be familiar with this term, easily translatable as a "do over." In a casual, friendly game of golf, if a player hits an errant drive it isn't uncommon for him or her to say "I'll take a Mulligan," meaning I will hit that shot again, without any penalty. This book is a Mulligan for me as it is allowing me to make some significant changes to the first edition, which was arguably a Mulligan for my very first book, published by McGraw-Hill.

Shortly after the earlier edition went to print I had an "epiphany" which I would liken almost to being "born again," as it has caused me to develop passion for what has become one of my favorite topics: money- versus time-weighting. I was so pleased to be able to write it that this chapter will be available on the CFA website.

You'll also notice that I have clearly admitted that "Modified Dietz returns are money-weighted." There, I said it again! I have caved into my colleague and friend, Carl Bacon, who long ago chastised me for failing to acknowledge this. And although I had known for some time that he was correct, I hesitated in stating it because it only, I thought, makes this topic even more confusing. I hope that my presentation in the book is lucid. And as for Carl, I do hate it when he is right, but fortunately this does not occur too often.

Our firm is actually running a "pre-order" or "pre-release" special on the book, so if you're inclined to purchase a copy, this is the perfect time. For details please contact Patrick Fowler

The Handbook of Investment Performance arrives this week!

We are so excited: my fourth book, The Handbook of Investment Performance, 2nd edition, arrives this week! And, we've already had around 100 orders.

It's great to be able to have a "do over," and that is what this is. I was able to incorporate a great deal of new material into the earlier edition.

We are running a special right now, so if you'd like to get a copy, contact Patrick Fowler or call my office (732-873-5700): they'll give you the details. But hurry, as the special ends March 15!

When having a minimum isn't an option

Many firms that claim compliance with the Global Investment Performance Standards (GIPS(R)) no doubt believe that the use of a "minimum" for their composites is an option, and in lots of cases this is probably true. For example, firms that strictly and consistently limit the size of new clients probably won't have a problem when it comes to assigning accounts to composites. But at other times there needs to be a minimum.

Recall that a minimum is supposed to be a threshold below which the firm is not able to fully execute the composite's strategy; it isn't meant to be a convenient way to reduce the effort to assemble accounts into composites (i.e., to reduce their workload). If the firm holds strictly to their minimum for new accounts, then it is likely that this value will serve the purpose for the composite's minimum.

One of our verification clients doesn't have a minimum, which in theory would be fine. However, they have some accounts that are so small that they cannot hold all the assets necessary for them to truly represent the strategy. In these cases, a minimum is needed. And the accounts that fall below are simply excluded. Of course this means that the firm needs to maintain the minimum. That is, they have to ensure that as accounts rise above the minimum they are included, and as accounts fall below they are removed. Yes, this is some added work, but it's required to ensure that the accounts in the composite truly represent the strategy.

Animation nation gets some publicity

Susan Weiner is a fellow blogger and a friend, who I enjoy chatting with, both through emails and our respective blogs. After seeing my recent move into the world of animation, she asked me to be a "guest blogger," which I was of course very pleased to do. That post was launched today; hope you find it of interest.