Asset owners face a growing challenge in explaining what drives their fund performance, according to a new whitepaper from Ortec Finance.
Several shifts are driving this. Allocation decisions now change more frequently, boards and regulators expect greater accountability, funds increasingly split mandates between in-house teams and outside managers, and many use overlay programmes to control risk across the whole portfolio. Each adds another layer that can obscure where returns actually come from.
Ortec Finance’s answer is a framework for measuring and attributing performance that goes beyond simply analysing how a portfolio is constructed. Instead, it tracks how each underlying choice feeds into the fund’s overall gains or losses. Working from the top down, the model is built to make sense of multi-asset strategies, overlays and the connection between what a fund sets out to do in policy and what happens in practice.
The thinking is straightforward. If asset owners can break a fund’s outperformance down into the decisions behind it, they can see which factors are genuinely moving the needle. To do this, Ortec Finance maps the entire decision chain, covering strategic and tactical calls, overlay strategies, the allocation of capital between managers and, ultimately, the selection of individual securities.
The firm calls this its Investment Decision Process (IDP) approach. By isolating each step, it puts a number on how much every decision has added to, or taken away from, total fund performance.
Ortec Finance has published a whitepaper setting out the model in more detail. It explains how the firm’s decision-based attribution approach can reveal the strengths and weaknesses of an investment process, giving asset owners the insight they need to sharpen future results.
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