Enhance Peer Groups: real trustee portfolios, real outcomes

Why peer groups matter to trustees

Trustees who hold investment portfolios on behalf of beneficiaries are routinely asked a deceptively simple question: is the manager doing a good job? A benchmark answers part of it, did the portfolio beat the index, but a benchmark is silent on whether the manager is delivering the kind of outcome a comparable portfolio under different management would have delivered. Peer groups close that gap, providing the second reference point trustees need: how the portfolio performed against the broad sample of comparable portfolios managed for clients like them.

The trouble with traditional peer groups

Most peer-group indices are commercial products. Investment managers pay a research coverage levy to be included, supply their own performance data on a named basis, and appear in the published index in return. The model has a structural flaw: it skews participation toward larger managers and those who can afford to pay. Smaller, newer or less well-resourced managers, many of which are perfectly capable performers, are simply absent from the sample. The result is a peer group that does not represent the industry; it represents the portion of the industry that has paid to be visible.

There are second-order problems. Managers who supply their own data have an incentive to present it favourably, and methodologies that rely on submitted gross returns and notional fee adjustments often present a flattering picture of what investors actually receive. Subscription-only access to the resulting data means many trustees never see the comparator they need most.

Each peer group is compared against an investable benchmark constructed from passive global equity and fixed income funds with realistic fee assumptions. The question being asked is not ‘did the peer group beat the index’ but ‘is active management as a whole delivering net-of-fees value to investors’. A quarterly commentary sits alongside the data.

How trustees should use them

Peer groups are not benchmarks, and they should not be treated as one. They are a contextual reference point that sits alongside the trustee’s primary tools, the IPS and Monitor reviews, rather than replacing any of them. Three uses dominate.

Individual portfolio context. Comparing a single Monitor review against the relevant peer group answers the second-order question: how does this manager’s performance compare to the broad sample of managers running similar mandates? A portfolio that beat its benchmark but lagged the peer group is a different conversation from one that lagged both.

Board and Investment Committee reporting. Practice-level packs that incorporate peer-group context tell a more complete story than benchmark-only reporting. The committee can see whether the trust company’s portfolio book is broadly tracking, leading or lagging the wider trustee-managed market.

Manager dialogue. A manager who has underperformed both the benchmark and the peer group has a more limited explanatory range than one who lagged the index but kept pace with peers. Bringing peer-group context into review meetings sharpens the questions trustees can fairly ask.

The peer groups are designed to be read alongside Enhance’s market data and quarterly commentary, also available on the Enhance website.

The bottom line

Peer groups should not be a commercial product that distorts the picture of what the investment management industry is delivering. They should be a transparent, representative, independently verified reference point that helps you understand whether the managers you have engaged are doing a good job. Enhance Peer Groups are calculated from thousands of real portfolios we independently monitor, on a net-of-fees basis, with no manager pay-to-play and full Investment Committee oversight. They are available via the Enhance website and built to be read alongside Monitor reviews, the IPS and Enhance’s market data and commentary.