Attribution Hears a Who! The Case for Decision-Maker Based Attribution

Abstract

In the late 1990s, Decision-based Performance Attribution (DPA) was introduced into performance reports and has slowly become the norm in the industry. As more analysts have examined this approach, the mathematical approaches have become elegant and the attribution has been refined to the last basis point. DPA focuses on breaking down total performance into the various decisions made in the fund: the Strategic Asset Allocation (SAA) and the Excess, with the Excess further disaggregated into the tactical asset allocation (TAA), manager selection within each decision bucket, manager allocation and individual security selection. But does this approach miss a key facet of investing: namely, in a typical institutional fund, there is delegation of duties at many levels of the fund, and unless each individual or institution is held accountable for the decisions they make, inefficiencies and poor risk management will ensue. In this article, we will argue that the elephant in the room, is that attribution needs to be used to hold decision-makers accountable and attribution reports should answer the Who question, which as important as the What question which DPA seeks to address. We provide a simple non-technical template for this approach we call Attribution of Returns using Organizational Network (ARUN) and encourage more talented attribution specialists to develop a more robust paradigm and method of reporting.