Performance Review is the systematic evaluation of an investment portfolio or strategy to assess its returns, risks, and alignment with objectives.
Performance Review is a structured process used in finance and wealth management to evaluate the results of investment portfolios, strategies, or individual asset performance. It involves analyzing returns over specific periods, measuring risk-adjusted returns, and comparing outcomes versus benchmarks or targets. The review helps identify successes, areas for improvement, and whether the investments are meeting the investor's goals. Typically, it combines quantitative metrics and qualitative assessment to gauge effectiveness.
Conducting a thorough Performance Review is crucial for informed decision-making in investment management. It enables wealth advisors or family office professionals to verify if the portfolio is performing according to the agreed-upon investment policy statement and helps highlight deviations from expected outcomes. Reviewing performance supports transparency and accountability, guiding potential portfolio rebalancing, risk mitigation, or strategic shifts. Additionally, it underpins reporting to stakeholders and informs tax strategy by revealing realized and unrealized gains, which impact taxable events.
A family office conducts a quarterly Performance Review comparing the portfolio’s 5% return over three months against a 4% return benchmark. The review highlights that the portfolio’s outperformance was driven by strong security selection in emerging markets. This insight leads to informed adjustments in allocation and risk controls.
Performance Review vs Performance Attribution
While Performance Review evaluates the overall outcomes of a portfolio or investment over time, Performance Attribution breaks down the sources of those returns into components such as asset allocation, security selection, and market timing. Attribution offers a granular analysis explaining why performance was achieved, whereas review summarizes the results for evaluation and decision-making purposes.
How often should Performance Reviews be conducted?
Performance Reviews are commonly conducted quarterly or annually, but frequency may vary based on investment strategy, portfolio complexity, and client needs. Regular reviews enable timely adjustments and transparent reporting.
What metrics are important in a Performance Review?
Key metrics include absolute and relative returns, risk-adjusted returns like the Sharpe Ratio, volatility, benchmark comparisons, and any relevant fees or expenses that affect net performance.
Can Performance Review identify underperforming investments?
Yes, Performance Reviews help pinpoint assets or strategies that are not meeting expectations, enabling advisors to recommend repositioning or exiting underperforming holdings to optimize portfolio results.
