Sudarat Chaiprasit, a portfolio manager with Ratchaphruek Capital Management, is in the process of onboarding a new client, Nattapong Aromdee. Aromdee utilizes multiple managers with individual mandates that together provide him with an overall portfolio strategy that meets his objectives and desired risk level. It is important to him to keep the overall portfolio construction and risk level consistent over time. Aromdee hired Ratchaphruek to manage the global small cap growth equity mandate in his portfolio. When meeting with Aromdee to develop his Investment Policy Statement (IPS), Chaiprasit requests that Aromdee allow her to set a wide range of investment characteristic parameters so she will not be constrained when managing the portfolio.

After meeting with Aromdee, Chaiprasit reviews three performance reports for the global small cap growth equity strategy she manages. The reports show that she has beaten the benchmark for most periods historically, but significantly underperformed during the most recent quarter.

1. The first report includes absolute returns for both her strategy and the strategy’s benchmark for relevant historical periods through the most recent quarter.

2. The second report includes benchmark-relative excess returns for relevant historical periods through the most recent quarter.

3. The third report is a performance triangle that shows the historical benchmark-relative excess returns over various intervals.

After Ratchaphruek has managed his account for 1 year, Aromdee calls Chaiprasit to discuss the portfolio’s performance relative to the peer group universe. Chaiprasit explains that a peer group universe is not considered a valid benchmark because it cannot be purchased. Aromdee responds that by using peer group universe performance information he can determine the likely sources of the portfolio’s outperformance. Aromdee adds that the if the peer group data shows that most of the managers in the universe are performing similarly then he can conclude that outperformance is due to current market conditions rather than differences in the managers’ investment processes.

Chaiprasit compiles characteristics to compare her global small cap growth equity strategy to a widely recognized global small cap equity index.