Investment management is built around benchmarking. Fund managers compare themselves against indices. Advisers compare portfolios against peers. Research houses compare managers against categories. Clients compare returns against expectations.
Benchmarking is so deeply embedded in the industry that it is rarely questioned.
But what if the more useful question is not what the industry is good at, but what it is collectively bad at?
Behavioural economist Rory Sutherland has described a concept known as reverse benchmarking. Rather than asking how to become marginally better than competitors at the things they already do well, reverse benchmarking asks a different question:
What are competitors surprisingly poor at?
The answer may reveal opportunities that traditional benchmarking overlooks.
The investment industry is remarkably good at discussing performance, volatility, asset allocation and economic forecasts. There are thousands of articles, presentations and research papers dedicated to these topics.
Yet there are several areas where the industry remains surprisingly weak.
