Summary

• Higher dispersion, increasing benchmark concentration, and more diversified portfolios have increased the importance of active management and understanding the true drivers of risk and return.
• Active fees should be linked to repeatable sources of skill, not market exposures that can be accessed more efficiently elsewhere.
• Measuring active management requires a portfolio-level perspective that distinguishes security selection from factor, sector, credit, duration, and currency exposures.
• Portfolio construction, risk attribution, overlays, and completion portfolios can help concentrate active risk in areas where investors expect skill to add value.

Asking the right question

Active management is often judged by the wrong first question: Did the manager outperform?

For investment committees evaluating multi-asset portfolios, performance is often where the analysis begins. The question is straightforward: Did the manager