Reporting is all about absolute return these days, which is no surprise to most small investors.
While all the chart comparisons of risk, return, and performance are compared to some benchmark, what the client really wants to know is one thing: How am I doing? Do I have more money now than when I started? And maybe one more thing, there is not much of comfort in being told that my portfolio beat the benchmark but is still in negative territory.
In the client’s mind, no matter how you manage it, less money is less money. Portfolio management these days (and it has probably always been so) is also about mitigating – to the extent possible – the downside risk on a client’s assets.
Since the early days of 2000, it seems to me that client investors have become more conservative about their overall asset allocation, as well as very unreceptive to any downside negativity.
Investors in capital markets know that this is a zero sum game, but they want the other guy to absorb the loss.
Hedge funds are increasingly serving as the alternative asset class to ameliorate the overall volatility of a portfolio, to assist in more consistent (although certainly less exciting) performance as well as focusing on providing absolute returns.
