The Family Office Sherpa Measuring Portfolio Performance via Good Benchmarks
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Sep 20, 2024 Discover the art of tailored portfolio benchmarking for family offices, where unique family goals drive performance measurement. Learn how combining financial metrics with qualitative factors like family dynamics reshapes investment strategies. Explore the various types of benchmarks and their crucial role in assessing performance, along with the significance of clear communication in investment committees. It's a fascinating look at how personalized approaches can lead to better investment outcomes.
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Benchmarking Portfolios
- Benchmarks help measure investment portfolios against goals, like matching returns stated in investment policy statements.
- These statements might include total return benchmarks (e.g., CPI) or deeper asset class analysis.
Types of Benchmarks
- Many clients use CPI-plus benchmarks to track if their portfolio outpaces inflation.
- Cash-plus benchmarks, tied to risk-free rates, have become impactful in higher-rate environments.
Benchmarking Illiquid Investments
- Consider "compensation for risk" when selecting benchmarks, especially for illiquid investments.
- For example, benchmark against public markets plus an expected margin (e.g., 2-3%) for private equity.