Expectations Shortfall

Some causes of implementation shortfall are exogenous—outside a manager’s direct control—which leads to expectations shortfall. Such causes are asset/liability mismatch, inflation, the demographic challenge of increasing life spans (will the purchasing power of a person’s assets last as long as the person does?), and taxes. The investment challenges posed by exogenous factors are manageable but only if the risks are anticipated, client expectations are managed, and portfolios are positioned to weather future storms.