Hidden Figures: the movie
My wife and I recently saw the movie “Hidden Figures,” which is about the contributions that three black women made to the U.S. space program, starting in the early 1960s. It takes place in Virginia, which at that time was still a highly segregated society. The movie is very well done, and I strongly recommend it.
The movie’s title is essentially a double entendre, as it offers two meanings: the three women who were hidden from view, as well as the numbers needed to get the space crafts safely launched and into orbit.
Hidden Figures: the underlying figures
It occurred to me that we could speak of “hidden figures” in terms of performance and risk measurement. And, we can do this from a number of perspectives.
First, that the numbers that are shown in our reports aren’t the hidden ones that are used to create those that appear. Do the recipients understand the breadth of numbers that
- must be drawn upon,
- must be reviewed,
- must be edited,
- must be calculated
in order to arrive at the end results? And how very important it is that this underlying data have a high degree of accuracy and integrity?
Hidden Figures: what’s not reported
Hidden figures include the numbers that aren’t shown: those figures that simply aren’t reported on.
For me, the one that comes immediately to mind (and no doubt isn’t a surprise to you) is money-weighted returns. To only show time-weighting is hiding figures that can provide the reader with great insight.
And speaking of insight, to deprive an institutional client access to the appropriate performance attribution statistics would qualify as hiding valuable information. Granted, most institutional asset managers today do report attribution, but not everyone reports the right attribution.
Take the case of fixed income managers who are showing an equity attribution model. These models aren’t intended for fixed income investing. They are not properly representing the results relative to the decisions that were made, which is a key requirement of performance attribution.
Furthermore, if you’re attribution is done on a return that hasn’t been adjusted for risk, then the contributions coming from risk will be improperly assigned to one or more investment decisions. Thus, risk from an attribution standpoint will be among your hidden figures.
Hidden Figures: from risk
What about the hidden figures of risk? While most asset managers and asset owners report ex post (or backward looking) risk, only a relatively small percentage provide ex ante (forward looking) risk. And while this subject can be quite controversial, and much work still needs to be done, there is still value in being able to provide insights into what the riskiness is over some future period of time.
But even with ex post risk, given the seemingly endless array of risk measures, might you be overlooking some that you should include?
Hidden Figures: what else?
I’m sure if you think about it, there are other potential hidden figures, both from a broad as well as a narrow perspective. I think it’s a subject worth contemplating.
Hidden Figures: at the Forum!
We will be hosting our spring Performance Measurement Forum meetings in a few months: I may put a talk together on this topic, as I think it’s worthy of discussion and dialogue, too! Hope you agree. Oh, and I suggest that you see the movie, if you haven’t done so already!