UK - Schemes must not rely on "flawed" quantitative models to help them make investment decisions, Escher UK Asset Management warned.
Managing director Steve Delo said the problem with quantitative or computer generated models was that the numbers fund managers and consultants used to create them were only a “broad guess” and they were using past performance figures in an attempt to interpret the future.
Delo urged schemes to treat quantitative models with caution and said that while “the computer never lies”, trustees must be wary of the questionable assumptions and spurious data they could produce.
He went on to say that trustees, when making investment decisions, pay far too much attention to irrelevant information – “noise” – such as statistics, opinions and comparisons with other schemes.
Delegates at the recent NAPF Investment Conference were told that fund manager beauty parades were the most vulnerable part of the investment process to “noise”.
Delo said that trustees, instead of questioning fund managers and making sure that they would get an appropriate service, were taken in by personalities and past performance statistics.
He said: “Most trustee decisions are made out of misunderstandings.
“Trustees are bamboozled by noise, so it’s no surprise that they make the wrong investment decisions.”
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