Until recently, performance data on the investment industry was focused almost entirely on measures of return. More recently, available software applications are providing the industry with a greater variety of performance measurement tools. These tools allow investors to gain a much greater insight into a manager's style and investment decision-making process. As investors become more sophisticated, they will move away from traditional measure of product (value and growth) to a more quantitative analysis. Access to measures of alpha, beta and standard deviation will allow them to differentiate between good and bad products. This in turn will allow investors to demand higher quality products of their active managers and allow them to replace lower quality products with index funds.

In this environment, investment managers will feel enormous pressure to clearly articulate and differentiate their product and investment processes from others in the industry. Managers who can offer transparency of process and guidance on interpreting and benchmarking performance will have the advantage. Further, the investment process will have to incorporate proper measures of risk and performance reporting will require new measures showing risk-adjusted returns. Managers who can provide an investment process that is consistent, repeatable and risk controlled will have the advantage. In short, the quality of the investment process will matter as much as past performance.

Based in part on "Success in Investment Management: Building and Managing the Complete Firm" Merrill Lynch & Co. Inc and BARRA Strategic Consulting Group, June 2000