When markets are rising, professional money managers typically feel terrible about their performance when they’re trailing their peers or their benchmark. They’re still making money mind you, but just not as much as everyone else is making.
But when markets are falling, professional money managers typically feel great about their performance when they’re beating their peers or their benchmark. They’re still losing money mind you, but just not as much as everyone else is losing.
There’s nothing inherently wrong with looking at relative performance numbers. For many, beating the benchmark is all that matters. And some strategies are designed to outperform during the downturns and lag when markets are rising. Plus, there are plenty of reasons that could explain this phenomenon including incentive structures, loss aversion, the fear of missing out, etc.
But my conclusion, based on watching this song and dance play out many times over the years, is that the money management business can be a nutty place sometimes. My feeling is many outside observers would have a hard time understanding this type of behavior, but to people inside the business, it’s just how things work.
Further Reading:
Things People in the Finance Industry Don’t Want You to Know
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