Benchmark Selection and Management Processes Review

The benchmarks assigned to the client’s existing portfolios – especially for fixed income mandates – did not reflect true portfolio risk. They were either too narrow (for example, risk free yield plus a risk margin) or too generic, not providing enough insight into the investment performance and appraisal process. The client also suffered from a wide range of index options and intricacies in their methodology, making it difficult to determine best fit.

The client looked to us for help in the evaluation of its benchmark selection and assignment process to ensure benchmarks were best-fit to the respective the mandates.

What we did

  • Analysed portfolios against mandates, SAA targets (asset class, duration, etc.), and the existing allocation to determine true portfolio exposure and risk
  • Discussed the investment process with regional portfolio management teams for feedback on portfolio analysis, to get better insight into their investment philosophy, and to address SAA misalignments so that they can be addressed going forward to account those changes, from benchmarking standpoint
  • Researched into available market indices using data from Bloomberg, or by reaching out to vendors, in order to determine an appropriate benchmark that was customised enough to more accurately reflect portfolio risks and the mandate
  • Drafted benchmark proposal with supporting analysis and discussed with investment management team to finalise benchmarks for the respective mandates

Our impact

  • Reviewed and instituted benchmark assignments which appropriately reflected risk and return characteristics of liabilities and enhanced insight into investment performance
  • Standardized benchmark selection process across the Asia-Pacific offices resulting in a uniform and transparent approach towards performance measurement
  • Project managed the implementation to push changes across all the regional offices
  • Knowledge base for the local client team and ensured a smooth handover at the end of the project

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