Would someone be able to explain this is plain English? Took this from the Schwesser text.
Fund returns, valuations, and external cash flows: When using percentage terms, returns will need to be calculated at the individual manager level. This enables the fund sponsor to make decisions regarding manager selection. If also using monetary values, account valuation and external cash flow data are needed to compute the value impacts of the fund sponsor’s investment policy decision making.
2 - Benchmark Returns - To compare the managers to a relevant benchmark/benchmarks.
3 - Fund Returns, Valuations and External Cash Flows. - This is needed to find out how each manager has performed, the valuations for their respective funds and cash inflows and outflows.
I guess they are implying that you are investing in a bunch of managers and each manager will have his/her own performance metrics - Which is essentially the idea behind performance evaluation.
Macro Attribution starts from the top (Initial Fund value net of Cash flows) and goes all the way to active return per manager while calculating each individual layer of risk added and the associated return with that risk.
In addition: fund returns take a TWR approach for evaluating managers. Valuations and external CFs allow computation of MWR to evaluate funding decisions of the sponsor (i.e. evaluating realloction decisions).
