Correspondence: Jürg Tobler-Oswald, City of Zurich Pension Fund, Strassburgstrasse 9, 8026 Zurich, Switzerland. Tel: +41 (0) 44 412 52 28; Fax: +41 (0) 44 270 91 00; E-mail: juerg.tobler@pkzh.ch

¹is with the City of Zurich Pension Fund since March 2006. He is responsible for the analysis on the fund's overall investment strategy and oversees hedge fund investments, bond investments and securitised real estate investments. Previously, he was with Cantonal Bank of Zurich with varying responsibilities. He holds a PhD in Finance from the University of St Gallen and was a post-graduate researcher at the University of British Columbia in Vancouver.

Received 25 June 2007.

Abstract

Multi-manager concepts are popular among institutional investors as they promise to deliver a better risk-adjusted performance than a single manager, thanks to diversification. A new measure of diversification, the diversification ratio, is introduced, which complements the usually used correlation coefficient. The diversification ratio provides information on the persistence of diversification and enables the investor to evaluate the potential diversification two managers with given skills may possibly provide.