How are benchmarks selected for a multifamily office’s investment reporting?
Benchmarks should match each portfolio’s mandate, objectives, asset mix, and strategy. We review whether an index is relevant, measurable, and clearly defined. For portfolios holding several asset classes, we may combine indexes into a custom benchmark. Reports should identify the components, weights, calculation method, rebalancing process, and any changes.
Start with the investment mandate
The benchmark should reflect the opportunity set and strategy the portfolio is expected to follow. The CFA Institute’s GIPS guidance recommends selecting an appropriate benchmark before the evaluation period and documenting the approval process. CFA Institute GIPS guidance
A global equity allocation needs a global equity reference. A short-term bond allocation needs a fixed-income reference with similar duration and credit characteristics. The comparison should use consistent return types, currencies, and reporting periods when those details affect the analysis. The SEC emphasizes that performance comparisons should be relevant to the investment being evaluated. SEC Investor Bulletin
Check quality and practical fit
We look for benchmarks that are measurable, unambiguous, and calculated consistently. The GIPS guidance also discusses liquidity, valuation timing, weighting methods, and the cost of index data. Private assets may require special treatment when valuations and market data are reported on different schedules. If no suitable benchmark exists, the report should explain why one was omitted. CFA Institute GIPS guidance
A multifamily office may use a strategic asset allocation benchmark to assess the portfolio as a whole and asset class benchmarks to explain performance by category. A custom blend can combine several indexes, but the report should identify each component, its weight, the calculation method, and the rebalancing process. CFA Institute GIPS guidance
What I found is that the best and family offices don't just invest their money into a portfolio. It's not nearly that simple. What they do is they find three different brains or teams to manage the three different major components of their portfolio.
Keep the comparison consistent over time
Benchmark selection should be reviewed when the portfolio mandate changes, the index no longer represents the strategy, or data quality changes. The CFA Institute says benchmark changes should be disclosed with their effective date and a description of the change. Adding a benchmark solely because it produces a favorable comparison can mislead readers. CFA Institute GIPS guidance
The CFA Institute Code also supports discussing the appropriate benchmark with clients on an ongoing basis, especially when a strategy is complex or diversified. CFA Institute Standard I(C)
Related guides
- MFO vs SFO vs RIA vs Private Bank: Which Fits Your Family?
- Reporting and Consolidation for Multifamily Offices
- Access to Alternatives Through an MFO: A Practical Guide for Families