Performance Evaluation of Active Managers : An Overview of Current Practice

Historically, manager skill has been measured simply as the difference in average returns between the portfolio and the benchmark index. Managers were considered skillful if their active weights against the benchmark led to outperformance. However, a manager tilting toward a certain risk-factor, relative to his benchmark, could appear to be skilled at stock picking or market timing. In response; with the advent of more advanced attribution technologies, the definition of manager alpha has become far more sophisticated and precise