Performance Measurement

Performance measurement is the discipline of quantifying the investment results of an asset manager against objectives, benchmarks, and peer groups. Two return methodologies dominate. Time-weighted return (TWR) removes the effect of cash flow timing, isolating the manager's investment decisions; it is the GIPS-recommended standard for comparing managers. Money-weighted return (MWR), most commonly calculated via the internal rate of return (IRR), captures the investor's actual experience including the timing and size of cash flows; it is the natural measure for evaluating a single investor's outcome.

Attribution decomposes the difference between portfolio return and benchmark return into explainable components. The Brinson-Hood-Beebower model attributes excess return to asset allocation (the bet on which sectors are over- or under-weighted) and security selection (the active bets within each sector). The Brinson-Fachler refinement adds an interaction term and uses the portfolio's actual over/underweight relative to the benchmark sector return. Multi-period attribution handles the geometric linking required for TWR-based series.

Factor-based attribution extends the framework to multi-factor models. The Fama-French decomposition attributes active return to market timing (MKT factor), size (SMB), value (HML), and the manager's specific security selection (alpha with respect to the three factors). The Carhart four-factor extension adds a momentum factor. Both are standard in equity long-only and long/short attribution and are computed directly in TQH TERMINAL against the standard factor returns or the bank's proprietary factor library.

Risk-adjusted return metrics are essential for comparing strategies with different volatility profiles. The Sharpe Ratio measures excess return per unit of total volatility, the Sortino Ratio restricts the denominator to downside deviation, the Information Ratio measures active return per unit of tracking error, and the Calmar Ratio uses maximum drawdown. TQH TERMINAL computes the full suite at portfolio, composite, and sleeve levels, and supports custom ratios defined by the user.

The output of performance measurement is consumed by portfolio managers (for self-assessment), CIOs and investment committees (for manager selection and replacement decisions), institutional clients (for mandate review), and regulators (where applicable, e.g., under AIFMD Annex IV). The platform produces client-ready reports with attribution overlays, factor exposures, and risk metrics, in formats suitable for both internal review and external distribution. GIPS-compliant composite construction is supported end-to-end.