Rethinking investment performance attribution

As asset owners move away from silo-based investment decision making, their performance attribution systems also need to evolve. The Alberta Investment Management Corporation AimCo, the C$70 billion arm’s length investment manager for public sector assets in Alberta, Canada, has implemented a new performance attribution system based on how managers actually make their investment decisions.

In an article in the Fall 2014 edition of the Rotman International Journal of Pension Management, authors Jagdeep Singh Baccher, Leo de Bever, Roman Chuyan and Ashby Monk, outline the history of the organisation’s investment performance attribution system, which was essentially a decomposition of the total value added in the prescribed “allocation” and “selection” buckets.

The new decision-based attribution system was designed to mirror the way AimCo actually makes investment decisions.

This includes which agents in the ecosystem are adding value – from the chief investment officer in asset allocation decision making, to the heads of assets classes making decisions about various markets within asset classes, and portfolio managers and analysts making decisions about specific stocks and bonds.

In addition to tactical asset allocation decisions, the new system also considers opportunistic decisions that don’t fit within an asset class.

As outlined in the article, the authors say the new decision-based attribution system has materially improved AimCo’s ability to understand the relationship between investment decisions and investment results.

This is particularly important given that performance attribution should not just explain the past, but be a tool to make better future investment decisions.

The full article can be accessed below

Rethinking Investment Performance Attribution

Jagdeep Singh Bachher was executive vice-president at AimCo when the article was written, he is now the chief investment officer of the University of California

Leo de Bever is chief executive of AimCo

Roman Chuyan is president and chief investment officer at Model Capital Management

Ashby Monk is executive director of Stanford University’s Global Projects Center