Lesson 3 of 4 · All lessons in this module
Lesson 3 of 4 · 10 min
Composites: no cherry-picking
A composite pools every actual, fee-paying, discretionary portfolio run to the same mandate, so a firm's record for a strategy cannot be built from its best accounts alone.
In short
- A composite is an aggregation of one or more portfolios managed to a similar investment mandate, objective or strategy.
- Purpose: stop cherry-picking, i.e., using the best-performing accounts to represent a strategy.
- A composite must include all actual, fee-paying, discretionary portfolios managed to that strategy, including those managed to it in the past.
- Membership is set by pre-established (ex ante) criteria, never chosen after seeing results (ex post).
- Every fee-paying discretionary segregated account must be in at least one composite; fee-paying discretionary pooled funds go into any composite whose definition they meet.
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