How do you know which analysts on your team are outperforming others? Can you separate those with skill from those with luck? How are you accounting for gaps in communication or thinking between your analysts and PMs? How well are you linking compensation with performance?
The answer lies in integrating a comprehensive research management system (RMS) with your firm's portfolio analytics platform, which will give decision makers key insights into the behavior and results of their analysts. Here’s how to construct an effective APM solution that can help you quantify the impact of analyst research and answer questions like the ones above.
What is your recommendation scheme, and is it uniform across analysts, sectors, and regions? How is an analyst’s investible universe determined? What is the appropriate benchmark for each analyst? Answer these kinds of questions to create a straightforward solution that consistently measures your team.
Make sure the tools are in place to help you turn data aggregation and performance analysis into an automated process, free from the risk of human error.
You’ll need a research management platform, like FactSet RMS, where your analysts can store, retrieve, and share their research, notes, ideas, and recommendations. This platform should boost cross-firm collaboration and ensure continuity even when an analyst leaves the firm. This is where your APM solution will begin mining data.
You’ll also need a strong, flexible analytics engine that will allow you to review your research data and identify key, decision-driving insights. Analysis could include the absolute and relative performance of your analysts’ decisions, which analysts had the best returns, and how often your portfolio managers took the advice of your analysts.
It will be critical that your analysts make consistent use of your RMS platform. An explanation of how the data will be used—to help give analysts credit for their work and ensure compensation is commensurate with individual performance —will be more than enough incentive.
Metrics should be quantifiable, and must directly impact your firm’s performance. Start with these questions:
Combine summary information for multiple portfolios so that all key data points such as holdings, returns, and predicted risk analysis are easy for even the busiest CIO or Director of Research to monitor. These overview reports can be designed to your firm’s specifications (including your brand’s logo, colors, and disclaimers) and display summary information for multiple analysts so that key data points are easy for senior management to review.
By this time, you’ve built a seamless solution that allows you to review the impact your analysts’ research has on your firm’s results. Now what do you do with this information?