SD-09.2 — Performance Attribution

Business Domain: BD-09 Performance & Analytics (Middle office) · Applies: BOTH

Purpose

Explains return — relative to a benchmark — by decision, factor and source. Where SD-09.1 produces the return figure, Performance Attribution decomposes it: how much of the result came from asset allocation, from security selection, from currency, from factor exposure, from manager skill. Attribution is what turns a return number into an account of why, and it is the evidence base for investment-process review and for manager evaluation. Attribution decomposes both sides of the active result: the return into its sources, and the risk that earned it — ex-post risk decomposition (contribution-to-risk), how much of realised tracking error came from which exposure, is the risk-side twin of the return decomposition, built on the same allocation / selection / factor cuts. It explains where return came from and what risk produced it; SD-09.3 Performance Appraisal judges whether the return was worth the risk.

Service Operations

Brinson attribution — decompose active return against a benchmark into allocation and selection effects, plus the interaction effect in the Brinson-Hood-Beebower form (Brinson-Fachler folds interaction into selection).
Factor attribution — decompose return into the contribution of systematic factor exposures and of residual (specific) return.
Fixed-income attribution — decompose return into carry, curve, spread and selection effects appropriate to debt portfolios.
Currency attribution — isolate the contribution of currency exposure and of currency hedging; the Karnosky-Singer framework where a currency overlay or hedge is in place.
Multi-level attribution — roll attribution up a portfolio hierarchy, from sleeve to asset-class portfolio to total fund.
Ex-post risk decomposition — contribution-to-risk: decompose the realised tracking error SD-09.3 measures into the contribution of each allocation, selection and factor exposure — the risk-side partner of the return decomposition, on the same cuts. SD-09.3 measures the realised tracking error; SD-09.2 decomposes it.
Private-market attribution — explain private-markets return against a public-market-equivalent comparator (the PME figure produced by SD-09.8).
Reconcile attribution to total return — confirm the attributed effects sum to the active return measured by SD-09.1, and account for the residual.

Inputs and outputs

Inputs: the return figures from SD-09.1; benchmark returns and constituents; holdings and their classifications; factor models and exposures (from SD-09.5); the PME comparator from SD-09.8; the realised tracking error from SD-09.3 — the risk figure ex-post risk decomposition decomposes into its allocation, selection and factor contributions.
Outputs: attribution analyses — the decomposed account of active return — feeding manager monitoring (SD-03.6), investment-process review across the front office, and governance and investor reporting (BD-16).

Entities

Consumes: E-04 Holding / Position (book = abor — attribution decomposes the realised return series from the accounting book), E-07 Valuation (any method), E-10 Benchmark / Index, E-09 Asset Class, E-11 Classification Type & Value (the taxonomy of the cuts) and E-12 Classification History (the sector / strategy / geography assignments attribution decomposes along); E-19 Risk Measurement (risk_type = market — the realised tracking error from SD-09.3 that ex-post risk decomposition decomposes, where a stored risk result is reused rather than recomputed); the SD-09.1 return figures; the SD-09.5 factor models and exposures; the SD-09.8 PME comparator.
Owns: none — attribution results are metrics, defined in the semantic layer (SD-13.8). The same open Performance Result question noted in SD-09.1 applies.

Standards

GIPS — where attributed performance is presented in a GIPS-compliant report, the calculation conforms to the methodology governed by SD-09.6.
Brinson-Hood-Beebower (1986) and Brinson-Fachler (1985) are the standard equity-attribution frameworks; they differ in the treatment of the allocation effect and of interaction. The fixed-income decomposition follows established carry/curve/spread practice; Karnosky-Singer is the standard for currency-overlay attribution.

Open extensions

The boundary with SD-09.3 is settled: SD-09.2 owns decomposition on both sides — it decomposes realised return into its sources and decomposes realised risk (ex-post risk decomposition, contribution-to-risk: how much of realised tracking error came from which exposure) on the same allocation / selection / factor cuts. SD-09.3 measures the realised tracking error and the risk-adjusted ratios, and consumes SD-09.2’s contribution-to-risk to attribute the risk taken; it does not decompose it. (The boundary is stated in the BD-09 README and mirrored on SD-09.3.)
The factor-model dependency on SD-09.5 made explicit — which factor set, sourced how.
The returns-based vs holdings-based vs transactions-based attribution choice — a methodology decision governed with SD-09.6.
Transaction-cost and trading attribution as a distinct effect.
Surplus / funded-ratio attribution for asset-owner and liability-driven contexts — whether it sits here or is out of BD-09 scope.