The Science & Art of Performance Attribution for Investing, Servicing & Marketing
The Science and Art of Performance Attribution for Investing, Servicing & Marketing
According to Celent Communications, IT spending on specialist performance attribution solutions will reach US$287 million by 2007 in the US and European markets.
In a new report, "The Science and Art of Performance Attribution for Investing, Servicing & Marketing," Celent analyzes performance attribution in the financial services community. Market woes, financial pressures, regulatory change, and scandal are making attribution analysis more important, not only for understanding portfolio returns, but also for determining executive compensation and monitoring compliance.
This report discusses the science and art of attribution. While the mechanics of attribution involve methods and data, the application of attribution is an art. Investment analysis requires interpretation, and there is a practical need for easy communication. Attribution, by helping with both of these tasks, is used to serve three cornerstones of the industry: investing, client servicing and marketing.
Performance attribution as multi-functional tool can add greater tangibility to a client purchase. The purchasing decision is based upon the asset managers historical actions and requires consistent results. "Being able to demonstrate consistency and internal controls is a powerful tool in investing, servicing, and marketing," says Denise Valentine, Celent analyst and author of the report.
Investment performance attribution solutions are broadly available to asset managers and institutional investors. There are three types of investment performance attribution providers in the market today: portfolio management systems, performance specialists and analytics specialists. Projected spending for specialist performance attribution solutions is a modest US$223 million for 2004, rising somewhat in 2005-2006 for a total expenditure of US$287 million in 2007.
According to Valentine, "Even though performance attribution is important, new adoptions of performance attribution solutions will emerge only slowly over the next four years. Financial institutions are wrestling with numerous IT projects, the most important of which involve core infrastructure. In the context of the current business climate, firms will look longingly at attribution systems but core infrastructure will remain a priority."
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