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How to move beyond guessing about manager skill with decision-based analytics, not the outcome-based analytics used at present.
Skill is the raison d'être for active equity management. Yet precious little is known about manager skill. What is skill? Who has it? How should it be measured? Is a manager's skill improving, declining, or remaining consistent? Unable to answer such fundamental inquiries capital, allocators have no choice but to rely on inferences, hunches, and guesswork.
In Skill Versus Luck, Michael Ervolini explains how to move beyond today's skill fog with the use of newer analytics developed over the past decade. Unlike conventional analytics that simply rehash fund outcomes, the newer analytics relate a manager's decisions to fund excess returns. These new cause-and-effect analytics provide rigorous measures of manager skill. Results from these newer analytics enable capital allocators to understand manager skills for the first time and make more effective allocation decisions.
Michael A. Ervolini has over 45 years of executive experience in institutional asset management. He was the founder and CEO of two fintech companies: Cabot Investment Technology, Inc. and Charter Research LLC. He is the author of Managing Equity Portfolios (MIT Press).
Skill is the raison d'être for active equity management. Yet precious little is known about manager skill. What is skill? Who has it? How should it be measured? Is a manager's skill improving, declining, or remaining consistent? Unable to answer such fundamental inquiries capital, allocators have no choice but to rely on inferences, hunches, and guesswork.
In Skill Versus Luck, Michael Ervolini explains how to move beyond today's skill fog with the use of newer analytics developed over the past decade. Unlike conventional analytics that simply rehash fund outcomes, the newer analytics relate a manager's decisions to fund excess returns. These new cause-and-effect analytics provide rigorous measures of manager skill. Results from these newer analytics enable capital allocators to understand manager skills for the first time and make more effective allocation decisions.
Michael A. Ervolini has over 45 years of executive experience in institutional asset management. He was the founder and CEO of two fintech companies: Cabot Investment Technology, Inc. and Charter Research LLC. He is the author of Managing Equity Portfolios (MIT Press).