Practical Applications of Lies, Damn Lies, and Benchmarks: An Injunction for Trustees

In Lies, Damn Lies, and Benchmarks: An Injunction for Trustees, from the July 2023 issue of The Journal of Investing, Richard Ennis, retired chairman of EnnisKnupp and a past editor of Financial Analysts Journal, argues that trustees of public pension funds and endowments should use passive benchmarks for performance measurement. Using passive benchmarks mitigates the problems of using biased benchmarks that are chosen or created by investment managers. Most public pension funds and endowments currently use biased benchmarks, which produce the false impression that their investment managers are outperforming. In fact, most investment managers for public pension funds and endowments underperform passive benchmarks by wide margins. The problem of biased benchmarks comes from the widespread practice of allowing investment managers to choose or create the benchmarks against which they will be measured.