How to compare investment manager returns for charities

The key considerations for trustees

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Nick Murphy
Published: 07 Jul 2023 Updated: 07 Jul 2023

Despite the best efforts of the regulator, and warnings that ‘past performance is no guide to the future’, trustees continue to put recent strong performance front and centre when picking an investment manager.

How can investment returns for charities be compared?


Asset Risk Consultants (ARC), an independent firm, persuaded almost all charity investment managers to submit their investment portfolio returns for their charity clients each month. ARC sorted the portfolios into four risk buckets based on the volatility of monthly returns over time and produced an average for each firm and an average for the industry for each risk bucket, after fees.

It is not a perfect method of comparison, as grouping using volatility as the sole criterion can lead to the grouping of very different strategies into the same category. The volatility grouping is wide so the range of risk actually taken within each sub-group can be material. However, it does allow performance track records from different firms to be assessed against the same criteria, the same calculation methodology and the same volatility risk brackets.

Independent methodology

Some firms use their own methodology to calculate their performance track records, using criteria that differ from the ARC methodology. These in-house performance track records are then compared with the ARC benchmark returns. In doing this, the integrity of the comparisons is compromised.

What do trustees need to think about?

Trustees need to understand how the performance track records are constructed, compare like with like and, importantly, know the sample size used to generate the ‘generic’ track record.

Having a central ARC register is not a solution for all performance measurement. Trustees must also consider:

Focus on short-termism

A classic trap for many trustees is to buy the manager that has done well, just as the environment that suited their investment style changes. As Professor Sir John Kay* noted:

‘Focusing on recent performance, rather than detailed, and more costly, due diligence of asset managers’ investment strategies exacerbates a culture of short-termism. If asset manager selection is based on near-term performance, individual fund managers are likely to be rewarded on a similar basis, and investment decisions will deviate from investors’ long-term objectives’.

The question to ask is how the manager performed through the whole investment cycle, both in rising and falling markets. Looking at five years or less of data simply isn’t long enough.

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Don’t Judge performance in isolation

It is important to understand the manager’s mandate, style, income objective, target return and the risk taken (measured by volatility and peak to trough drawdown), which profoundly affect performance.

It is essential that the investment process is robust and repeatable.

Ignoring risk

A fund manager may have produced extremely good returns for investors, but they may have achieved it from a handful of concentrated short-term bets. This could bring uncomfortable volatility, or even liquidity issues. Any consideration of returns should be weighed against the risks taken to achieve those returns. A good risk guide is to look at performance periods when markets are falling.

Ethical restrictions

If there are significant constraints placed on portfolios, including restrictions on major sectors for ethical reasons, then like for like comparisons become more difficult.

Comparisons between investment managers cannot simply be based on the return number. An understanding of the underlying methodology is vital. It is also essential to ensure that trustees focus on an investment performance over a full economic cycle, both the good and the bad. Performance must not be judged in isolation and it is essential that there is a real understanding of the risks taken to drive that return.

Speak to Evelyn Partners

Our dedicated charities team can help with all areas of comparing and selecting an investment manager. For more information about how they can work with you and your charity, contact a member of our team.


*Kay, ‘Review of UK equity markets and long-term decision making’, 2012


By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.