Returns in any non-pooled vehicle like a PMS or advisory are very different for different clients, depending on when a particular client joins the PMS or advisory.
In an advisory (as opposed to a discretionary PMS), one additional factor is the execution delay particularly in small/midcaps can mean different investors are exiting or entering at very different prices thereby getting different returns.
Also, in advisory, not everyone is able to execute in real-time due to lack of cash at that time, being unavailable at the time of advice, different thinking regarding particular advice than the adviser resulting in different actions, etc – this also causes different returns.
The biggest challenge, however, is the psychological behavior of the investors themselves. Most money comes at the top of any cycle while most results by various firms are shown typically from a bottom point of the cycle (like FY09 or FY13 or FY18 etc). Hence the average returns per client are vastly and completely different from the track record returns shown by a firm.
To that extent, investors should worry much more about their own biases – whether they can be invested for the long term behaviorally, whether they are coming at the top of the cycle, etc, and whether they can not take adverse actions like getting out at the bottom, etc.
Also, the track record shown by an adviser has to be taken with a pinch of salt (be it audited or unaudited) as it is not a weighted average track record of all clients.
When it comes to choosing the adviser or fund manager – the most pertinent questions are a) my track record can be much worse than the marketed track record, do the fund manager still have it in him/her to beat the benchmarks across all timelines comfortably, b) can I trust the guy to act wisely and not just deploy my money randomly in the riskiest stocks as he has no downside, c) does he have a consistent discipline and strategy to create alpha across cycles, and d) does he have the requisite experience and knowledge (10 years professional full time investing experience in buy-side roles is the least I would recommend) to do something like this in the first place – this last factor itself would eliminate 95% of the people who are clamoring for your attention and money.
PS – The author runs his own SEBI-registered PMS. Views are personal.
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