Fund managers' attitudes to risk and time horizons: the effect of performance benchmarking

Abstract

Results are reported of an interview survey conducted with 64 fund managers. The objective of the survey is to identify the performance appraisal and reward systems under which the fund managers are operating, and to identify ways in which this impacts upon their investment heuristics. The results of the interviews indicate that fund managers are evaluated on a regular basis against performance benchmarks, although the extent of such evaluation and the choice of benchmark differs according to the types of funds under management. The papers hows th at performance evaluation affects fund managers' attitudes to risk, to motivation and to time horizons. It is shown that fund managers believe that the quarterly relative performance monitoring to which many funds and fund managers are subject, results in the adoption of a more short-termist attitude and approach to the management of the funds in question.