Performance and risk analysis is conducted and reported as part of the monitoring process. Performance and risk analysis and reporting is undertaken for the portfolio as a whole and also by asset classes, direct investments and external managers. Performance and risk is reported and aggregated by an independent performance measurer.
Guideline code
INVEST_02400
Mechanism
Mechanism
- Performance and risk analysis of the investing institution’s portfolio as a whole and by asset classes, direct investments and managers should be conducted regularly and include calculation of nominal, risk-adjusted and inflation-adjusted (real) rates of return.
- Performance and risk analysis of the investing institution’s portfolio as a whole, asset classes, direct investments and investments managed by external managers should be measured in relation to the agreed benchmark(s).
- Risk analysis should incorporate parameters that are appropriate for the investing institution’s portfolio as a whole and for different asset classes, direct investments and managers. Appropriate risk measures may include tracking error, volatility (standard deviation of returns), value at risk (VaR), Sharpe ratio and scenario analysis. It may also be useful to consider (qualitatively or quantitatively) other forms of risks facing investments, e.g. extreme event risks.
- Investments are made with the expectation of a certain level of return and risk over a given period. The same time period should be considered when performance and risk is being analysed. Even the most skilled managers will generate periods of underperformance; therefore, any manager should be assessed against its long-term performance objectives and its future potential.
- An independent performance measurer should be appointed to report the absolute and relative rates of return and risk of the investing institution’s portfolio as a whole and also by asset classes, direct investments and managers, as required. The delegation of performance measurement to an independent performance measurer can ensure consistent performance calculations and provide transparency of the investing institution’s investments.
- The performance and risk analysis should be prepared by the management or investment committee, based on data reported by the independent performance measurer, for review by the board.
- Performance of the investing institution’s total portfolio as a whole, as reported by the independent performance measurer, should be disclosed to stakeholders.
- Where a dynamic de-(re-)risking strategy has been adopted, the performance and risk of the portfolio should be regularly monitored against its investment goals to determine which goals are not likely to be met and, therefore, which de-risking or re-risking actions should be considered.
- The portfolio should be regularly monitored against the strategic asset allocation. The management or investment committee may take responsibility for the decision to rebalance and/or de-(re-)risk the portfolio.
- Where the board, management or investment committee lacks sufficient resource, expertise or governance budget to undertake performance and risk analysis monitoring and reporting, the board, or the management or investment committee with board authorization, should seek expert advice or appoint external professionals to carry out these functions.
Parent
Structure
Structure
- Performance and risk analysis and reporting at an appropriate level should be a key part of the monitoring process.
- The performance and risk monitoring period should take into consideration the nature of the assets.
- Performance and risk should be reported and aggregated by an independent performance measurer.
- Performance and risk should be considered in the context of any dynamic de-risking, re-risking and rebalancing strategies.
- The investing institution should endeavour to ensure that information about investment performance and risk is as transparent and understandable as possible.
- There may be an office external to the investing institution to evaluate, monitor and review the overall risk of the investment portfolio.
Title HTML
Guideline 21. Performance and risk analysis monitoring and reporting
Type
Guideline_1
Weight
28