Bonham Carter: Consistent outperformance is a “fluke”

The asset management industry focuses too much on short-term figures and fails to realise consistent outperformance is a “statistical fluke”, according to Edward Bonham Carter, group chief executive at Jupiter.

Speaking at Jupiter’s 2012 investment dinner, Bonham Carter said one of the main shortcomings of the industry is the promise of persistent outperformance by fund managers and the expectation of these high returns by investors.

“It is almost a statistical improbability. You shouldn’t seek that level of consistent outperformance – it doesn’t exist except as a statistical fluke,” the chief executive said.

“The industry is flawed, in my view, by implicitly promising or expecting that.”

Furthermore, Bonham Carter used his speech to criticise the short-term focus currently found in some segments of the industry.

“There is a tendency in the industry to sack people at the bottom of their investment style and to hire people at the top and it’s a flaw of the industry to launch funds at the wrong time of the asset cycle and close them towards the bottom.”

Bonham Carter stressed the importance of active fund management, claiming the rise of passive products is something the active industry has to work to address through promoting its strengths.

“You can actually say if a fund manager has added value or not relative to the benchmark,” he explained. “Active fund management is exquisitely measurable.”