Inalytics, a specialist in analysing investment performance, has launched a new data-driven model that helps asset owners see the difference between luck and skill when selecting managers.
The model, developed by Inalytics through analysis of $22 trillion of trades in a database it has built over 20 years, uses data science to quantify the impact of the decisions that asset managers make when running the concentrated, bottom-up portfolios that dominate the investment landscape today. For the first time in the modern era, it means pension funds and other institutional asset owners can measure the investment skills that really matter when choosing managers to run mandates.
The model, ‘DECSIS’, analyses the four core investment decisions and processes – or ‘alpha drivers’ – Inalytics has found to have the potential to generate alpha in equity portfolios: stock picking, sizing positions, trading activity and holding periods.
By analysing these four drivers and showing how they contribute to the total performance of a portfolio, the model allows asset owners to see precisely where asset managers add or detract value, facilitating more efficient manager searches and better-informed due diligence and monitoring exercises.
The model can also be used as an evaluation and coaching tool by fund managers, providing them with granular insight into the decisions they need to improve to enhance performance.
