The Impact of Investment Operations on Portfolio Performance

This research note summarizes intriguing evidence on the impact of an asset manager's overall investment operations on individual portfolio performance. Our exploratory analysis of operational data associated with 61 institutional portfolios across 14 managers (over the period October 1999 to August 2009 inclusive) suggests that robust investment operations can mitigate potential outflows of excess return within a portfolio ranging from 51-242 basis points (relative to the benchmark and gross of fees). The dissipation of returns stems from implementation shortfalls (Perold [1988]) associated with a broad spectrum of activities performed within investment operations. Our inquiry was motivated by the insufficiency of existing approaches that evaluate 'ops' simply through the lens of expenses, workflows, and best-practices adoption - while ignoring the more central question of how overall operational efficiency contributes directly to performance of the firm's portfolios