I'm reading through Active Portfolio Management, and I can't get my head around Information Ratio's real world applicability.

In table 5.6 it lists some empirical infomation ratios:

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However, there is no discussion of whether these are stable over time. Is there any indication that a 90th percentile manager will have an above median IR in the near future?

It is all good to look back and say "Alice performed remarkably well in the trailing 5 years", it's a very different statement to say "Alice is shown to be more skilled by recent performance". The first statement is descriptive, the second is predictive.

Any thoughts on how best to interpret this?

  • 2
    $\begingroup$ Thank you, I'd accept that as an answer if you add it. It feels nuts to me (coming from machine learning) to see all of these metrics with 0 justification for their future utility. $\endgroup$
    – MYK
    May 19 at 8:28

1 Answer 1


Nothing about IR is predictive (like most metrics used to analyze managers). The usefulness of IR is highly dependent on picking a benchmark to which the manager is highly correlated. Analyzing active mutual funds with strict mandates is easy, whereas a multi-strat hedge fund that can do whatever it wants is nearly impossible.


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