Rethinking Performance

How we view investment performance must change. 

Measuring investment performance has long been dominated by one number – percentage returns, mostly versus a benchmark. Within this implied zero-sum game, investors can only control what share of the pie they received, not its size or the broader economic, environmental and social outcomes achieved. 

The way investment performance is measured needs to evolve if it is to reflect the fact that the allocation of capital and use of ownership rights have both real world and real investment impacts. 

For long-term investors, understanding how effectively capital is being deployed for productive and sustainable purposes, and the ability to influence better outcomes through engagement and advocacy are critical for achieving a holistic view of investment performance.

Stewardship and RI have become the key terms used to describe this shift in thinking, however they have not yet entered the investment performance discussion beyond whether their impact on returns can be discretely measured. That debate assumes that all of the benefits of these approaches can fit within the existing norms and frameworks for performance measurement. To address this, new forward and outward looking measures are needed as indicators of the quality of investment practices, part of which will be determined by their alignment with broader societal objectives and environmental sustainability.

Over the last 10 years we have recognised the challenges of rethinking performance measurement and have been evolving our reporting accordingly. In addition to long-term returns, we report on long–term holding retention, turnover, proxy voting, inherent levels of ESG risks and the processes underlying the way they are managed. Our integrated approach to reporting uses quantitative measures, narrative and case studies to provide a more complete picture of our investment beliefs, approach, process and performance. While we still have much we can improve on, our focus has been to broaden the discussion of performance so that it becomes long-term, socially connected, active and sustainable.

If institutional investors are to accept and be recognised for playing their role in society and for allocating capital in the way beneficiaries expect, such multidimensional ways of assessing performance will emerge and become more widespread. 

Achieving this goal will help underpin long-term returns for both the investors and society through an increasing focus on delivering a fairer and more sustainable economy.

"The way investment performance is measured needs to evolve if it is to reflect the fact that the allocation of capital and use of ownership rights have both real world and real investment impacts."

"To address this, new forward and outward looking measures are needed as indicators of the quality of investment practices, part of which will be determined by their alignment with broader societal objectives and environmental sustainability."

"While we still have much we can improve on, our focus has been to broaden the discussion of performance so that it becomes long-term, socially connected, active and sustainable."