What is the first step in building a custom benchmark according to ISDRR?

The first step in building a custom benchmark, according to the Investment Strategy Development and Review Report (ISDRR), is to identify the manager's strategy. This foundational step is essential because the benchmark should be reflective of the investment approach that the manager employs. By clearly understanding the strategy, including the asset classes, investment style, and specific criteria that the manager uses to select investments, you can create a benchmark that is not only relevant but also a fair measure of performance.

Developing a meaningful and applicable benchmark requires starting with a comprehensive understanding of the manager's strategic approach. Once the strategy is identified, further steps like selecting the appropriate securities, devising a weighting scheme, and setting up a rebalancing process can naturally follow. These subsequent steps are predicated on the clarity gained from identifying the manager's strategy, ensuring that all elements of the benchmark align with the intended investment objectives and goals.