How underperformance affects fund managers behaviour


In the article written by  Greg Richmond and Alistair Byrne, CFA within the Investment Risk and Performance series published by CFA Institute, authors are examining the ways in which fund manager behaviour changes after the experience of a period of substantial underperformance. 

When investment performance is good, the job of managing money brings many rewards. In addition to financial rewards, fund managers get positive feedback from their clients, their peers, and the firm’s management, and they receive all the satisfaction that comes from success. But what happens when the manager suffers a period of substantial underperformance? This experience brings few rewards and any number of unwanted pressures. Does it change investment behavior, and if so, is it for the better or the worse? How effective are firms in supporting their fund managers through the tough times?

The area was examined by carrying out structured interviews with 20 experienced investment professionals. All the participants had managed money and investment teams, and 11 were current or former chief investment officers (CIOs).

There were five changes in investment behavior that a majority of the participants had observed and considered to be unhelpful:

  • Shifts in risk appetite
  • Shortened time horizons
  • Increases in loss aversion
  • Lowered levels of engagement with colleagues and
  • Increases in confirmation bias

If you want to read more download the paper: Fund Management: An Emotional Finance Perspective or go to to look for other resources.

If you want to learn more about measuring investment performance the next Eureka Financial course on Investment Performance Measurement & Attribution Analysis covers all aspects of performance measurement including the calculation of returns, impact of different benchmarks and adjusting performance for risk taken.


Eureka Financial offers over 100 public and in-house training courses in banking and finance, corporate finance and M&A, risk management, operations, investments, wealth management, soft skills and management. For more details visit:

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