Chasing performance is a dangerous game

MANAGER PERFORMANCE

It is extraordinarily difficult to judge manager skill solely on the basis of historical performance; it must be combined efficiently with other information such as an analysis of the investment process, writes INTECH's David Schofield

Investors often report they have had bad luck when hiring investment managers. The subsequent performance of their managers tends to be below their expectations and the managers’ historical performance. However, this bad luck may not be due to luck at all but a consequence of how the hiring is done. Some investors put great weight on historical performance: but it is extraordinarily difficult to judge the skill of investment managers solely on this basis. An example To see why, assume a world in which each investment manager has a true performance of zero relative to his benchmark. Sup...