Investment guidelines and investment objectives are often considered as one, the reality is that they are distinct and should be treated separately. An account’s investment objectives can only be properly set after the investment guidelines, and the associated risk controls, have been established. They are derived from the guidelines – that is to say, the objectives should be realistic and demanding given the range of opportunities available.
Our AMps software uniquely allows multiple, and mutually achievable, objectives to be set, that are both tightly defined and which can, subsequently, be accurately monitored.
Typical objectives for the total portfolio, or an underlying manager, might be to achieve a certain absolute real rate of return target and an above median performance within a particular opportunity set by the investment guidelines with both objectives measured monthly over a relevant trailing time period.
This should be contrasted with the general approach to objectives being either relative to a market peer group or peer groups benchmark or absolute returns, with no consideration for the impact of inflation and an acceptance of poor absolute or poor relative returns depending on the nature of the objective selected.