Manager C
The composite for this product is above average in its representation of the performance of an individual portfolio. The manager has separated the composite into three distinct composites based on target markets. There is an institutional, high-net-worth and broker- consultant composite. Dispersion for this product should be low because the majority of client portfolios are based on a model portfolio with limited turnover. Dispersion is low for wrap and institutional clients, but high for high-net-worth clients. The composite is in compliance with AIMR Level II Performance Presentation Standards.
It's A Wrap
As shown here, managers have great flexibility in creating and reporting their composite performance. Of the three managers, here's how they fared:
Only Manager C has a composite that truly is representative of performance for different types of clients.
Manager B's composite is AIMR-compliant, but its performance is not necessarily representative of the high-net-worth client.
Manager A's composite may not be representative of the high-net-worth client or future results.
To get a full understanding of the composite and its impact on individual clients, one cannot just accept the returns as reported by the manager but instead must dig deeper into the composite's construction.
Paul A. Kuppinger is director of research for Denver-based Prima Capital, a Web-based applications service provider dedicated to providing research, due diligence and systematic manager evaluations and rankings. Prima facilitates the selection of private-account and mutual fund managers who best suit the needs of high-net-worth investors.
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