Performance Evaluation defines performance measures for each step of the investment cycle, from Investment Strategy to the Execution of orders. Therefore it combines many aspects of data management and financial modelling. In the case of Execution Management, it will evaluate the performance of the order execution. This is done by checking the actual trades, considering models of uncertainties related to changing financial market conditions such as volatility and liquidity, and their impact on the transaction costs.
In addition, the so called valuation risk has a direct impact on internal and regulatory compliance, counterparty exposure and performance management.
The valuation risk should not be underestimated, as it has a substantial impact on the financial community, and has led to reputational risk and financial 'runs'; impacting credit ratings, funding costs and management structures of financial institutions.