What is a benchmark and why is it important for evaluating investment performance?
A benchmark is simply a standard used for comparison purposes in evaluating the performance of the General Board’s investment managers. All of the General Board’s managers are assigned a benchmark by the Investment staff based on the types of securities in which the managers invest and their respective investment styles. Examples of benchmarks include popular market indices such as the S&P 500 (for U.S. large-capitalization public equities) or the Lehman U.S. Universal (for U.S. fixed income securities.) Over time the Investment staff measures each manager’s actual performance against the performance of the benchmark to ascertain the quality of investment decisions that managers are making and whether the manager is adhering to his or her advertised investment style. Benchmarking is just one of the many tools that the Investment staff uses to regularly assess whether a manager should be retained or replaced.
