Top 5 Risk Statistics to Include in Your Factsheets

Jocelyn Gilligan
CFA, CIPM - Partner
October 4, 2023
15 min
Top 5 Risk Statistics to Include in Your Factsheets

We all know that investing involves a delicate balance of seizing opportunity and managing risk. Even if you do it well, your factsheet may not adequately explain how your strategy manages that balance. Your factsheets tell the story of your performance history and play a crucial role in your sales process by helping prospective investors make informed investment decisions. But how do you know if you’ve included the right information?

Types of Measurements

While every strategy differs in terms of its investment objective, it’s important to identify which types of statistics will be the best at helping you tell the story behind your investment strategy.

Before you choose the exact statistics to include, take a moment to think through what makes your strategy unique and then consider the audience you’re speaking to (sometimes this may mean making more than one factsheet for the same strategy – think retail vs. institutional).

Here are the main categories that should be included…

  • A measure of volatility – to demonstrate stability (or variability) of your strategy
  • Correlation – to express sensitivity to the benchmark or market
  • Risk-adjusted returns – to standardize performance evaluation when considering risk
  • Downside risk – to explain how your strategy performs in down markets
  • Market Capture – to display how the strategy performs during market movements (up or down)

Only you know what makes your strategy unique and appealing to prospective investors, so take the time to determine the key pillars of your strategy and then select statistics that help demonstrate or reinforce that story.

Once that’s clear, it’s time to crunch some numbers.

Top 5 Risk Statistics

Here’s a list of the top 5 risk statistics our experts see included on our clients’ factsheets.

1.  A Measure of Volatility: Standard Deviation

Investment managers have different ways of measuring volatility – often dependent on the strategy employed. Most commonly, we see standard deviation used, which is a measure of total risk (i.e., both systematic and unsystematic risk). Standard deviation quantifies the variability of a strategy’s returns from its average over a specific period. A higher standard deviation indicates greater volatility, implying that the strategy’s returns have experienced significant fluctuations or high variability.

Standard deviation is generally presented for both the strategy and a comparable benchmark. Risk-averse investors are generally looking to invest in strategies that achieve higher returns than the comparable benchmark while having a lower standard deviation than the benchmark over the same period.

Be sure to use this measure to demonstrate the stability of your strategy when it is historically low or to attract those with higher tolerance for fluctuation when it has been historically high. An explanation about how that higher fluctuation translates into outperformance will help paint a more complete picture.

2. Strategy Correlation: Beta

When assessing a new strategy, investors often want to consider how the strategy will fit into their broader portfolio. One way to evaluate this is by considering how sensitive the strategy is to the market (or the total portfolio’s benchmark) using beta. When armed with this information, investors can determine if adding your strategy would increase or decrease their exposure to the pulse of the market. If your strategy intends to offer diversification benefits, beta should be less than one (or negative). If you are adding market exposure, it should be greater than one.

In factsheets, we commonly include beta, calculated against the strategy’s benchmark, to show how the strategy moves relative to its benchmark. This is useful for investors to see if the calculated beta aligns with how an investment manager has described its investment process.

For example, for a strategy described as a “bottom-up approach that holds a concentrated portfolio of the best-performing stocks from a larger universe” (and therefore not directly tied to an index), we would expect beta to be very low (or even negative) or very high, but not close to 1. If it is close to 1, they may be a “closet indexer” that claims to have an in-depth research process, uncorrelated with the market, but in reality, is still basically replicating the benchmark. Investors would want to know this because they can invest in ETFs or funds designed to replicate a benchmark for much lower fees.

Conversely, for a strategy that is described as "enhanced indexing," beta should be close to 1 with returns that outperform the index. In this case, the goal is to track the risk level of the index while beating it performance-wise.

In either case, investors want to see strategy metrics support how your strategy and process is described. If any of these risk measures don’t align, we recommend taking the time to understand and explain why.

3. Risk-Adjusted Returns: Sharpe Ratio

While arguably the most common risk statistic to include, the Sharpe ratio is helpful as a comparison tool because it standardizes performance and risk into one measure.

The Sharpe ratio demonstrates a strategy’s risk-adjusted return by considering its excess return (return above the risk-free rate) per unit of risk taken (standard deviation). A higher Sharpe ratio is preferred. If your strategy claims to offer superior returns with lower risk, the Sharpe ratio is an appropriate measure to demonstrate that.

However, keep in mind that this measure may not be useful for strategies that are not normally distributed (e.g., hedge funds or other strategies with returns that are materially positively skewed when the strategy is successful). For most traditional investment managers, especially those targeting institutional investors, this measure is often expected on a factsheet, so don’t overlook it.

4. Assessing Downside Risk: Maximum Drawdown

Maximum drawdown measures the largest peak-to-trough decline in a strategy’s performance over a specific period. This metric is crucial because it quantifies the potential loss an investor could have experienced during the strategy’s worst-performing period. A larger maximum drawdown implies higher downside risk.

This measure is often good to show along with the max drawdown of the market or benchmark for comparison. While higher potential returns often correlate with greater downside risk, investors, equipped with this information, can determine their tolerance for this kind of loss. In addition, they can use it to compare to other similar strategies they are considering.

If your strategy claims to manage downside risk, maximum drawdown is arguably the best measure to demonstrate tactful management during down markets.

5. Market Capture: Upside/Downside Capture

These measures assess how well a strategy or portfolio performs during market movements, specifically in comparison to a benchmark. Upside capture measures the degree to which a strategy captures the positive returns of a benchmark during periods of market growth. Downside capture measures the degree to which a strategy is exposed to losses when the benchmark declines.

These capture ratios can be used to explain how a strategy aims to achieve specific goals related to market conditions. For example, “beats the market on the upside and protects on the downside” (you’d hope to see over 100% upside capture with less than 100% downside capture) or “capital preservation with risk targets below the overall market” (you’d expect to see lower than 100% upside capture with hopefully a very low downside capture).

Please note that it is most common to show these measures together (or to show total capture ratio that combines the two). Considering the “fair and balanced” requirements in the SEC marketing rule, it’s likely prudent to include both to explain the full picture.

For an aggressive strategy that is over 100% capture both on the upside and the downside or a capital preservation strategy that is under 100% both on the upside and downside, you ideally can still show that the total capture ratio is greater than 1. This demonstrates that the strategy is winning on the upside by a greater amount than it is losing on the downside or that protection on the downside more than offsets the lagging performance on the upside.

Conclusion

When it comes to investing, knowledge is power. Factsheets provide investors with valuable information to help them make informed decisions about your firm and strategies. When you provide them with a full picture of your performance that includes risk, they are more fully equipped to consider you for further due diligence.

Investment firms that understand these statistics and use them to help explain the story of their investment performance provide context and transparency in a saturated landscape of investment options.

Make sure to take the time to understand what these measures say about your performance each period and include that in some form of market commentary when you share your factsheets with prospects. This demonstrates how informed you are about the strategies you manage, how decisions made impact results, and what your plans are to address them.

Want to discuss how you can improve your factsheets with risk statistics? Schedule a free 30-minute brainstorm with one of our partners on which statistics you should include to help explain your investment performance.

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Key Takeaways from the 2025 PMAR Conference
This year’s PMAR Conference delivered timely and thought-provoking content for performance professionals across the industry. In this post, we’ve highlighted our top takeaways from the event—including a recap of the WiPM gathering.
May 29, 2025
15 min

The Performance Measurement, Attribution & Risk (PMAR) Conference is always a highlight for investment performance professionals—and this year’s event did not disappoint. With a packed agenda spanning everything from economic uncertainty and automation to evolving training needs and private market complexities, PMAR 2025 gave attendees plenty to think about.

Here are some of our key takeaways from this year’s event:

Women in Performance Measurement (WiPM)

Although not officially a part of PMAR, WiPM often schedules its annual in-person gathering during the same week to take advantage of the broader industry presence at the event. This year’s in-person gathering, united female professionals from across the country for a full day of connection, learning, and mentorship. The agenda struck a thoughtful balance between professional development and personal connection, with standout sessions on AI and machine learning, resume building, and insights from the WiPM mentoring program. A consistent favorite among attendees is the interactive format—discussions are engaging, and the support among members is truly energizing. The day concluded with a cocktail reception and dinner, reinforcing the group’s strong sense of community and its ongoing commitment to advancing women in the performance measurement profession.

If you’re not yet a member and are interested in joining the community, find WiPM here on LinkedIn.

Uncertainty, Not Risk, is Driving Market Volatility

John Longo, Ph.D., Rutgers Business School kicked off the conference with a deep dive into the global economy, and his message was clear: today’s markets are more uncertain than risky. Tariffs, political volatility, and unconventional strategies—like the idea of purchasing Greenland—are reshaping global trade and investment decisions. His suggestion? Investors may want to look beyond U.S. borders and consider assets like gold or emerging markets as a hedge.

Longo also highlighted the looming national debt problem and inflationary effects of protectionist policies. For performance professionals, the implication is clear: macro-level policy choices are creating noise that can obscure traditional risk metrics. Understanding the difference between risk and uncertainty is more important than ever.

The Future of Training: Customized, Continuous, and Collaborative

In the “Developing Staff for Success” session, Frances Barney, CFA (former head of investment performance and risk analysis for BNY Mellon) and our very own Jocelyn Gilligan, CFA, CIPM explored the evolving nature of training in our field. The key message: cookie-cutter training doesn't cut it anymore. With increasing regulatory complexity and rapidly advancing technology, firms must invest in flexible, personalized learning programs.

Whether it's improving communication skills, building tech proficiency, or embedding a culture of curiosity, the session emphasized that training must be more than a check-the-box activity. Ongoing mentorship, cross-training, and embracing neurodiversity in learning styles are all part of building high-performing, engaged teams.

AI is Here—But It Needs a Human Co-Pilot

Several sessions explored the growing role of AI and automation in performance and reporting. The consensus? AI holds immense promise, but without strong data governance and human oversight, it’s not a silver bullet. From hallucinations in generative models to the ethical challenges of data usage, AI introduces new risks even as it streamlines workflows.

Use cases presented ranged from anomaly detection and report generation to client communication enhancements and predictive exception handling. But again and again, speakers emphasized: AI should augment, not replace, human expertise.

Private Markets Require Purpose-Built Tools

Private equity, private credit, real estate, and hedge funds remain among the trickiest asset classes to measure. Whether debating IRR vs. TWR, handling data lags, or selecting appropriate benchmarks, this year's sessions highlighted just how much nuance is involved in getting private market reporting right.

One particularly compelling idea: using replicating portfolios of public assets to assess the risk and performance of illiquid investments. This approach offers more transparency and a better sense of underlying exposures, especially in the absence of timely valuations.

Shorting and Leverage Complicate Performance Attribution

Calculating performance in long/short portfolios isn’t straightforward—and using absolute values can create misleading results. A session on this topic broke down the mechanics of short selling and explained why contribution-based return attribution is essential for accurate reporting.

The key insight: portfolio-level returns can fall outside the range of individual asset returns, especially in leveraged portfolios. Understanding the directional nature of each position is crucial for both internal attribution and external communication.

The SEC is Watching—Are You Ready?

Compliance was another hot topic, especially in light of recent enforcement actions under the SEC Marketing Rule. From misuse of hypothetical performance to sloppy use of testimonials, the panelists shared hard-earned lessons and emphasized the importance of documentation. This panel was moderated by Longs Peak’s Matt Deatherage, CFA, CIPM and included Lance Dial, of K&L Gates along with Thayne Gould from Vigilant.

FAQs have helped clarify gray areas (especially around extracted performance and proximity of net vs. gross returns), but more guidance is expected—particularly on model fees and performance portability. If you're not already documenting every performance claim, now is the time to start.

“Phantom Alpha” Is Real—And Preventable

David Spaulding of TSG, closed the conference with a deep dive into benchmark construction and the potential for “phantom alpha.” Even small differences in rebalancing frequency between portfolios and their benchmarks can create misleading outperformance. His recommendation? Either sync your rebalancing schedules or clearly disclose the differences.

This session served as a great reminder that even small implementation details can significantly impact reported performance—and that transparency is essential to maintaining trust.

Final Thoughts

From automation to attribution, PMAR 2025 showcased the depth and complexity of our field. If there’s one overarching takeaway, it’s that while tools and techniques continue to evolve, the core principles—transparency, accuracy, and accountability—remain as important a sever.

Did you attend PMAR this year? We’d love to hear your biggest takeaways. Reach out to us at hello@longspeakadvisory.com or drop us a note on LinkedIn!

ColoradoBiz Names Longs Peak’s Jocelyn Gilligan, CFA, CIPM as a Gen XYZ Top Young Professional
Longs Peak is pleased to announce that Partner and Co-Founder, Jocelyn Gilligan has been named a GenXYZ Top Young Professional by ColoradoBiz Magazine. As ColoradoBiz states, “They’re uncommon achievers, whether as entrepreneurs, CEOs, nonprofit leaders, visionaries critical to their companies’ success or, in some cases, all of those roles. This year’s Top 25 Young Professionals figure to continue making a difference professionally and in their communities for years to come.”
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Longs Peak is pleased to announce that Partner and Co-Founder, Jocelyn Gilligan has been named a GenXYZ Top Young Professional by ColoradoBiz Magazine.

As ColoradoBiz states, “They’re uncommon achievers, whether as entrepreneurs, CEOs, nonprofit leaders, visionaries critical to their companies’ success or, in some cases, all of those roles. This year’s Top 25 Young Professionals figure to continue making a difference professionally and in their communities for years to come.”

Jocelyn grew up in Boulder, CO and graduated from the University of Colorado. She started her career at Ernst & Young in New York City where she worked on their Financial Services Transfer Pricing Team. She transferred with EY to their office in Shanghai and then eventually to Hong Kong. Jocelyn left EY as a Manager and relocated back to Colorado where she and her husband started a family. Soon thereafter, Jocelyn and Sean founded Longs Peak out of a small one-car garage in their home in Longmont, CO. Now running a thriving team of 14, Jocelyn has weathered the ups and downs of entrepreneurship. She credits a lot of their success to their amazing team and the community of entrepreneurs they live near and network with (Longs Peak is an active member of EO (Entrepreneurs Organization)).

Jocelyn is a voting member of the PTO at her children’s school and a member of Women in Investment Performance Measurement, a group recently founded to support women in the investment performance industry.

About ColoradoBiz’s Top 25 Young Professionals

The 13th annual Gen XYZ awards is open to those under 40 who live and work in Colorado — numbered in the hundreds, making for difficult decisions and conversations among judges, as always. Applications were judged by our editorial board based on career achievement, community engagement and their stories of how they got to where they are now.

About Longs Peak

Longs Peak is a purpose and values-driven company. It is our mission to make investment performance information more transparent and reliable—empowering investors to make better, more informed investment decisions.

At the onset, we were looking to help smaller investment managers by giving them access to professional performance experts and tools typically only available to very large firms. We know that our work enables emerging managers to compete with the big guys and helps facilitate their growth. We strive to be our clients’ most valued outsource partner and to be known for our exceptional client service. We know that providing exceptional client service means that we must first create a culture that lives by the ideals we are trying to create for our clients. A place where incredibly talented individuals are empowered to put their best work into the hands of clients that truly value what we do. As a firm, we recognize that our greatest asset is people – both those we work with and those we work for. We continue to evolve into something that represents the needs of both of these groups and hope someday a GIPS Report is provided to every prospective investor in the world.

SEC Clarifies Marketing Rule: Gross-of-Fee Returns Allowed Under Certain Conditions
The investment management industry has spent significant time grappling with the SEC’s Marketing Rule and the question of whether gross-of-fee returns can be presented without corresponding net-of-fee returns in certain cases. Many firms have invested resources in trying to allocate fees to individual securities and sectors in an effort to comply. However, the SEC has now issued two FAQs (March 19, 2025) that provide much appreciated clarity on extracted performance and portfolio characteristics. The key takeaway? It is possible to present gross-of-fee returns without net-of-fee returns—if certain conditions are met.
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The investment management industry has spent significant time grappling with the SEC’s Marketing Rule and the question of whether gross-of-fee returns can be presented without corresponding net-of-fee returns in certain cases. Many firms have invested resources in trying to allocate fees to individual securities and sectors in an effort to comply. However, the SEC has now issued two FAQs (March 19, 2025) that provide much appreciated clarity on extracted performance and portfolio characteristics. The key takeaway? It is possible to present gross-of-fee returns without net-of-fee returns—if certain conditions are met.

Extracted Performance: Gross Returns Can Stand Alone Under Specific Criteria

Investment advisers often present the performance of a single investment or a subset of a portfolio (“extracted performance”) in marketing materials. Historically, the SEC required both gross and net performance to be shown for such extracts. The new guidance provides a pathway for firms to display only gross-of-fee extracted performance, provided the following conditions are met:

  1. The extracted performance must be clearly identified as gross performance.
  2. The advertisement must also present the total portfolio’s gross and net performance in a manner consistent with SEC requirements.
  3. The total portfolio’s performance must be given at least equal prominence to, and facilitate comparison with, the extracted performance.
  4. The total portfolio’s performance must be calculated over a period that includes the entire period of the extracted performance.

If these conditions are satisfied, the SEC staff has indicated they will not recommend enforcement action, even if the extracted performance is presented without corresponding net returns. This is a notable shift, as it allows firms to avoid the complex and often impractical task of allocating fees at the investment or sector level.

Portfolio and Investment Characteristics: Net-of-Fee Not Always Required

Another common industry question has been whether certain portfolio or investment characteristics—such as yield, volatility, Sharpe ratio, sector returns, or attribution analysis—constitute “performance” under the marketing rule, and if so, whether they must be presented net of fees.

The SEC’s latest guidance acknowledges that calculating these characteristics net of fees can be difficult and, in some cases, may lead to misleading results. As a result, the staff has confirmed that firms may present gross characteristics alone, without net characteristics, if they meet the following criteria:

  1. The characteristic must be clearly identified as calculated without the deduction of fees and expenses.
  2. The advertisement must also present the total portfolio’s gross and net performance in a manner consistent with SEC requirements.
  3. The total portfolio’s performance must be given at least equal prominence to, and facilitate comparison with, the gross characteristic.
  4. The total portfolio’s performance must be calculated over a period that includes the entire period of the characteristic being presented.

As with extracted performance, these conditions help ensure that the presentation is not misleading, reducing the risk of enforcement action.

Bottom Line: A Practical Path Forward

This updated SEC guidance provides much-needed flexibility for investment managers, allowing for the presentation of gross-of-fee returns in a compliant manner. Firms that clearly disclose their approach and follow the specified conditions can reduce compliance burdens while still meeting investor protection standards. While this does not eliminate all complexities of the Marketing Rule, it does offer a practical solution that allows for more straightforward and meaningful performance reporting.

For firms navigating these changes, ensuring clear disclosures and maintaining compliance with the general prohibitions of the rule remains critical. Those who align their advertising materials with these guidelines can now confidently use gross-of-fee performance in a way that is both transparent and in compliance with regulatory requirements.

Questions?

If you have questions about calculating or presenting investment performance in a manner that complies with regulatory requirements or industry best practices, we would love to talk to you. Please feel free to email us at hello@longspeakadvisory.com.