Manager skill service to revolutionise alpha assessment

QIC has reinforced its alpha/beta split by becoming the first Australian fund to employ a behavioural performance service to assess the investment skills of its individual funds managers and more accurately identify the generation of alpha.

Inalytics’ Behavioural Performance Strategies, a quantitative analysis tool that identifies and assesses fund manager’s investment skills, is the first of its kind in the Australian market and could revolutionise the way investors, and managers, assess investment skill. According to managing director of Inalytics for Asia Pacific, Amanda Field, there had previously been no tool to identify investment skill and where alpha came from. “In this alpha-chasing environment we can go behind track records and see where alpha is being added,” she said. The tools assess and identify skill using quantitative analysis of each transaction a manager executes, with data provided either directly from the client or via the client’s custodian, and all reports distributed online. The service is also suitable for funds managers who can assess their own alpha-adding capabilities and capitalise or correct them where necessary. Inalytics, which is based in London, is also speaking with other multi-managers, super funds and funds managers in Australia and hopes to have three or four clients by the end of the year. For QIC it emphasises the philosophy of splitting its investments between alpha and beta, providing a tool for assisting with the monitoring of international and Australian equities and due diligence when looking at new managers. Greg Liddell, head of implemented equities at QIC, said the service allowed unique insight into the skill level of managers. “We would never sack a manager on a quantitative measure, but we might ask some more questions,” he said. “This is the first time we have used a tool like this and its added another level of sophistication.” One example of the analysis the service can provide is the disposition effect, which shows a manager’s ability to buy and sell stocks. A recent report by Inalytics showed managers generate on average 50 bps of alpha on the buy side, but lose up to 100 bps when they sell, giving a net negative effect of 50 bps.