The Corporate Library Study Reveals Fund Outperformance Due to Governance Screens

Hypothetical Fund Outperforms Benchmark by 279 Annualized Basis Points

Results from a new study published by The Corporate Library, an independent corporate governance research firm, found that enhanced screens for corporate governance risk augmented investment returns in a hypothetical fund. The results of the study set the stage for the development of a commercially viable governance alpha index.

The study, conducted by a third-party analytics firm, compared the performance of the "Enhanced Governance Alpha Fund" (GAF Plus) with the Russell 1000 benchmark over a five-year period. The GAF Plus was created based on another hypothetical fund, the "Governance Alpha Fund" (GAF), which used an exclusionary screen based on The Corporate Library's proprietary governance risk ratings. The GAF Plus further excluded companies that had been assigned a D or F Board or Compensation component rating, regardless of a company's overall rating.

Over the period of five years, the GAF Plus outperformed the benchmark by 279 annualized basis points. The study found the outperformance was largely attributable to the influence of The Corporate Library's corporate governance ratings on the fund's investment choices. (In comparison, the GAF was found in a previous study to outperform the Russell 1000 by 102 annualized basis points.)

"The GAF Plus concept maximizes the impact of The Corporate Library's primary screens for high governance risk," said Ric Marshall, Chief Analyst for The Corporate Library and author of the study. "The GAF and GAF Plus would be ideally suited to meet the needs of investors looking for a passive, large-scale index-style vehicle with mitigated governance risk."

Unlike corporate governance ratings that rank companies based on adherence to a checklist of "best practices," The Corporate Library's ratings are based on proprietary indicators of governance risk and are therefore better designed to assist in investment decision-making than the "one-size-fits-all" ratings produced by a compliance-based model. By screening for companies with poor corporate governance and then eliminating them from a given investment portfolio, The Corporate Library's ratings may be used to inform investment decisions by minimizing exposure to governance-related risk.

The study, titled "Investing In Corporate Governance: Maximizing Governance Alpha," is available as a free download from The Corporate Library's online store at http://www.thecorporatelibrary.com/info.php?id=76.

About The Corporate Library

Now celebrating its tenth year, The Corporate Library is an independent research firm that provides corporate governance information products, research services and data to a broad variety of clients including institutional investors, corporations, D&O liability insurers, law firms, accounting firms, executive search firms, academic institutions and the media. The Corporate Library produces the definitive ratings of U.S. corporate boards of directors, allowing businesses that subscribe to the service to evaluate governance as an element of investment and other risk. The Corporate Library is also a leading publisher of corporate governance reports and studies, including reports on CEO employment contracts, governance practices, mutual fund proxy voting, and executive and director compensation, which its analysts compile using its extensive database of over 3,200 public companies and over 47,000 executives and directors. Additional information on The Corporate Library and its suite of online corporate governance data and analysis products can be found on its website at www.thecorporatelibrary.com.