Definition of performance appraisal

In general, a performance appraisal is a meeting between an employee and a manager to discuss the quality of the employee's work, and areas for future progress. [1]

In fund management, performance or manager appraisal is the systematic evaluation of the investment performance of a collectively managed pool of assets in order to understand the abilities of a fund manager to deliver future performance.  Performance appraisal is a formal and structured process and relies heavily on benchmark comparison. 

Such appraisal results in an assessment of the strengths and weaknesses of a manager and his ability to deliver on a stated benchmark goal.  It can sometimes be called manager appraisal.  It identifies where a fund manager is adding or destroying value and should picks up any changes in style and investment process. In this respect, the aim of performance appraisal is to identify where a the value added by a fund manager’s return is positive relative to his contribution to performance against the appropriate benchmark.  It also identifies where there is no value added or indeed value that is  being destroyed by a fund manager relative to his contribution to performance against the appropriate benchmark. 

Performance appraisal is typical done at regular meetings which are designed to review the performance and attribution of a fund managers delivered returns against the relevant benchmark or designated index. For example, a UK equity manager may be compared to the FT All share index. [2]

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