What Is Adjusted Benchmark Equity?
Adjusted Benchmark Equity is a customized point of reference used to evaluate the investment performance of an equity portfolio. It falls under the broader discipline of performance measurement within finance. Unlike a standard market index, an Adjusted Benchmark Equity is specifically tailored to reflect a portfolio's unique investment mandate, constraints, or characteristics, such as specific asset allocation targets, risk tolerances, or geographical exposures. This customization aims to provide a more accurate and relevant comparison for the actual returns achieved by a fund manager. The goal of an Adjusted Benchmark Equity is to offer a truer gauge of value added by active management, accounting for factors that a generic benchmark might overlook.
History and Origin
The concept of customized benchmarks, of which Adjusted Benchmark Equity is a specific application, evolved alongside the increasing sophistication of portfolio management and the recognition that generic indices often failed to adequately represent the specific objectives or constraints of diverse investment strategies. As the investment landscape grew more complex, particularly with the rise of institutional investing and specialized mandates like liability-driven investing, the need for more precise performance evaluation became evident.
The Global Investment Performance Standards (GIPS), issued by the CFA Institute, beginning in the late 1980s and formally established in 1999, played a crucial role in standardizing how investment performance is calculated and presented, including the appropriate use and disclosure of benchmarks.7 The GIPS standards define a benchmark as a point of reference against which a portfolio's returns or risks are compared.6 These standards emphasize that a benchmark should1234