Quality Money Management : Process Engineering and Best Practices for Systematic Trading and Investment

245

Define Performance Controls

CHAPTER ◆ 27

Perform

SPC

analysis

Determine

causes of

variation

Manage portfolio and risk

Plan

performance

and risk

processes

3

2

1

Define

performance

controls

FIGURE 27-1

Monitoring performance and risk metrics requires keeping track of individual trades and

their respective payoffs. With the choice of so many methods to calculate performance

metrics and the potential for errors and abuse, top management must establish internal

controls and policies with respect to calculations, performance presentation standards, and

independent verification in accordance with CFAI/GIPS/NAPF guidelines, including:

● Consistency of calculation methods.

● The treatment of fees and transaction costs.

● Currency translations.

● Handling of intraperiod cash flows.

● Accuracy of pricing data and algorithms.

● Accuracy of input data for theoretical values of illiquid securities.

While the calculations of these metrics may appear simple, small differences or nuances,

such as average capital invested, can have significant impacts on return calculations.^1