How often does the consultant or manager consider the timing element of "truth in reporting" as it relates to quarterly performance numbers provided to fund sponsor clients?
Not very often, because most fund sponsors continue to insist upon their respective data ASAP. For the impatient, that means preliminary numbers often are meant to suffice.
Yet, upon checking some year-end 1998 returns and rankings, I found fund performance percentile rankings that gravitated downward 5 percentage points for one year and 13 percentage points for three years as a database for the fourth quarter of 1998 was gradually completed.
An anxious fund sponsor who received a "hurry up" report ranked in the 37th percentile, which surely is OK, but would have ranked in the 50th percentile (hmmm?) for the same three-year period if its performance database universe had been complete when the sponsor's ranking was reported early.
Does it come out in the wash? Not if a sponsor always receives quarterly reports and rankings early. Multiyear as well as one-year rankings remain distorted at each reporting point.
The sponsor (and its interested parties) may never know that its data, sometimes shared quite widely, is not as good as the real truth still hidden in the belatedly completed database.
Not as good? Unfortunately, akin to the reality of unreversed securities brokers' transaction errors, the sponsor who "waits it out" to get final performance numbers seldom sees the numbers move favorably from the preliminary performance reports.
Grab the better? Wait for the worse? Major database managers report that early data inputs "shape" quarterly universe patterns rather well but, until complete data arrive, individual rankings can bounce quite a bit. Again, changes seldom improve one's position if it was good the first time around.
Which sponsors (or manager beneficiaries) patiently await later reports, or at least get preliminaries and finals before they share the news? Let's check and see.
Kenneth L. Holmes is a director of Peirce Park Group as well as president of K.L. Holmes & Co., both in Wilmington, Del.
