Skip to content

FRM Part II · FRM Exam Part II · Performing Due Diligence on Specific Managers and Funds

A due diligence team compares a fund's track record with a peer group of managers. Which feature of the peer group most threatens a valid comparison through survivorship bias?

Survivorship bias arises when the peer database includes only funds still reporting at period end, because failed funds have been dropped. Peer returns are then overstated, making the comparison with the fund unreliable.

  1. AThe peer database includes only funds still reporting at the end of the periodCorrect
  2. BThe peer group includes funds of different sizes
  3. CThe peer database reports net-of-fee returns
  4. DThe peer group is updated monthly

Explanation

Survivorship bias arises when defunct or liquidated funds drop out of the database, leaving only survivors with better results, which overstates peer performance and distorts comparison. Different sizes, net-of-fee reporting and monthly updates are not sources of this bias.

Did you get it right without looking?

One question tells you little. A timed set on Performing Due Diligence on Specific Managers and Funds shows your real accuracy, how long you take and where you lose marks.

Practise Performing Due Diligence on Specific Managers and FundsFree diagnostic mock

More Performing Due Diligence on Specific Managers and Funds questions