• Document: Guidance on Performance Attribution Presentation
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EUROPEAN INVESTMENT PERFORMANCE COMMITTEE Guidance on Performance Attribution Presentation  2004 EIPC Page 1 of 13 EUROPEAN INVESTMENT PERFORMANCE COMMITTEE Guidance on Performance Attribution Presentation Section 1 – Introduction Performance attribution has become an increasingly valuable tool not only for assessing asset managers’ skills and for identifying the sources of value added but also for facilitating a meaningful dialogue between investment managers and their clients. Like any other performance presentation, a presentation of performance attribution results provides meaningful information to the user only to the extent the user understands the assumptions and concepts underlying this presentation. That’s why it is crucially important that the presentation of attribution results is provided in a way that does not mislead the users and contains all necessary disclosures to explain the underlying assumptions and concepts. Given the aforementioned, the European Investment Performance Committee (EIPC) has decided to take the initiative and to address the demand of the investment management industry for specific guidance with respect to presentation of return and risk attribution analysis. The first step was the issue of the EIPC Working Paper „Guidance for Users of Attribution Analysis“ in early 2002. The following Guidance on Performance Attribution Presentation represents the next milestone in this process and establishes a reporting framework, which provides for a fair presentation of return and risk attribution results with full disclosure. EIPC acknowledges that this Guidance is not the final step in this process and will have to be developed further to address any new matters arising in future. Except for definition of some general terminology, the Guidance does not address methodological issues with respect to calculation of attribution results, nor attempts to present any prescriptive definitions. EIPC believes that setting any standard on performance attribution should primarily contribute to increasing the understanding of attribution through the necessary disclosures and transparency of the methodology and investment process. For details on various performance attribution methods and concepts, users should refer to the dedicated performance literature available. Being a “disclosure guidance”, the Guidance can be generally applied to all types of investment portfolios (equity, fixed income or balanced). The Guidance does not require investment managers to present return and risk attribution results. However, if investment managers do present attribution analysis, they are encouraged to provide full disclosure and to apply the provisions of the Guidance. As the importance of a particular piece of information may vary depending on the situation, EIPC believes that differentiation in the disclosures between required and recommended may be too subjective. EIPC regards it as the responsibility of users of performance attribution to duly inform themselves about performance attribution concepts and, when presented with performance attribution results, to ask relevant questions to understand the underlying assumptions and methods. Not doing this may lead to misinterpretations and misjudgment of the quality of investment managers presenting the attribution results. The Guidance was approved by EIPC in January 2004. EIPC proposes that this Guidance be adopted by the Investment Performance Council (IPC) as a guidance for the investment management industry.  2004 EIPC Page 2 of 13 EUROPEAN INVESTMENT PERFORMANCE COMMITTEE Guidance on Performance Attribution Presentation Section 2 – Definitions The purpose of the following definitions is to provide the user with an explanation on the terminology as it is used in this Guidance. The Guidance does not attempt to establish any absolute or dogmatic definitions and recognises that there may be various views and interpretations of these matters within the investment management industry. Performance Attribution: 1) Performance attribution techniques are generally understood as a process of decomposition of return and risk into the investment management decisions in order to measure the value added by active investment management and to communicate the risk components of the investment strategy. 2) For the purposes of this Guidance term “Performance Attribution” refers both to attribution of historic returns and to risk attribution (ex-ante and ex- post). The Guidance emphasises the distinction between return and risk and encourages the view of

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