Evaluating Fund Performance from Financial and SRI Criteria

Abstract

Classical approaches to financial performance of funds have the following characteristics. First, the performance composite measure is only capable of combining two criteria, which are usually profitability and risk. In purely financial analyses, this limitation is justified because profitability and risk are the more interesting criteria for most investors in funds. However, in ethical financial analysis this limitation prevents the possibility of combining multiple SRI and financial criteria. Second, the classical approaches are designed regardless of the investor’s preferences for each criterion. An advantage is that the performance ranking of funds can be used whatever the investor. A disadvantage is that many investors want to manage performance rankings constructed from their preferences for ethical and financial criteria. To overcome these difficulties, the performance ranking can be constructed by a CP-based model extended to multiple SRI and financial criteria with the possibility of introducing preference weights. In this chapter, a CP model with linear-quadratic achievement function is presented and applied to an actual financial case as well as to a combined SRI-financial case.