In an interesting twist of events today, the brokerage Numis has retracted its criticism of asset manager Schroders, after calling its use of investment performance “disingenuous”.
The retraction and apology was issued in response to earlier criticism of a press release from Schroders, which prominently stated 74% of the company’s assets had outperformed their benchmark over three years, rising to 85% over five years.
Numis initially said the performance figures represented “...what we felt was a disingenuous reporting of alpha.”
It was suggested that Schroders didn't disclose upfront in their press release that the numbers only related to a subset of their funds, and didn't mention at all that the outperformance figures were gross of fees.
Active fund managers seem quite defensive at the moment, with the growing threat of regulatory intervention over their fees and value for money, and the rising popularity of index trackers.
In my opinion, any selective use of fund performance data can be fairly described as ‘disingenuous’.
In this case though, Schroders was reporting only the figures on which it had a sufficient track record. And the press release was intended for an institutional investor audience, not retail investors.
Had it been for a retail investor audience, Schroders know better than to put important explanations in footnotes; where selective use of performance data is made, asset managers need to display this as prominently as the figure itself.
We would always expect performance figures to be presented net of fees, as this is the performance experienced by retail investors. Institutional investors however tend to work with gross performance figures.
At a time when the fund management sector needs to work harder to build trust with investors, this could have been an example of an asset manager selectively reporting performance figures which had been chosen to shine a positive light on their activities.
In this particular case though, I can understand why Numis issued their retraction and apology; it was well deserved.
In a footnote on page five of the press release, Schroders clarified the performance figures only applied to a subset of its funds as it did not have sufficient information to measure performance across all of its assets. The FTSE 100 fund company did not state that performance was measured before fees were deducted.