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If you calculate a hurdle based return adjusted for compounding, Eagle Performance adjusts for compounding effects by calculating a running return for the period that is adjusted by the specified bps, and then backing into the return for the observation date being calculated.
This methodology uses the same approach as the noncompounded method to calculate the Nth root offset to apply. However, the adjustment is not the same for each observation and the system must calculate the observations in order, as it does for floating benchmarks.
In order to adjust for compounding, the entity build accesses the unadjusted (source) returns and adjusted (target) returns for the prior year or back to the entity's last definition change (whichever is more recent). The system takes returns from the stored returns in the PERF_SEC_RETURNS table for each of the specified advanced fields with a CIDX return process type. The system only needs to calculate the return for the current day—no prior returns are adjusted.
Note that the system considers only the most recent definition when calculating for any period.
It must calculate every period from the definition forward in sequence. This is necessary because the current day is adjusted based on the returns of prior days within the annual period (one year or a portion of the year if the last definition is less than a year prior to the effective date for the calculation). The numerator in the equation is the linked unadjusted returns for the year plus the appropriate portion of the yearly bps adjustment (using the appropriate Nth root for each period). The denominator in the equation is the linked adjusted returns for the prior periods in the year. The appropriate portion of adjustment is based on the number of observations in the year (12 for monthly) and the number of periods that have passed for the year.
The adjustment uses only prior performance data for the frequency being calculated. This means a daily calculation requires prior daily returns and a monthly calculation requires prior monthly returns. Neither frequency uses prior data stored under the other frequency.
This solution states each daily return using a running adjustment that can be calculated without knowing future periods and does not restate prior periods. It applies a cumulative 12th root adjustment and backs into each daily return by unlinking the cumulative adjusted return for the prior day. This provides an adjusted daily (or monthly) return series that links to the required adjustment over the period. It calculates a rolling adjustment that works for any annual period. AnchorRTF390039003500320034003a00RTF390039003500320034003a00

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You can create a Linked type custom benchmark that uses hurdle based reporting. A hurdle based benchmark allows you to build a benchmark with a return specified at a certain number of basis points relative to a source benchmark. For details, see Calculate Returns for Hurdle Based Benchmarks.
In this sample hurdle based benchmark, over the year 2011, Custom Index 3 is equal to 300 basis points above the Domestic Equity index.
To create a hurdle based linked custom benchmark:

1. From any Eagle window, click the Eagle Navigator button to access the Eagle Navigator.
2. Enter Entities in the Start Search text box.
3. Click the Entities (Performance Center) link. You see a list of entities.
4. Click the Create link.

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1. In the Entity Info tab, in the:

• Type list box, select Custom Benchmark.
• ID and Name fields, enter the entity ID and name for the custom benchmark.

1. In the Entity Details tab, enter the Inception Date associated with the hurdle based custom benchmark.

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1. In the Custom Index Attributes tab, shown in the previous figure, enter the following data to define the hurdle based custom benchmark.

The previous figure, Creating a New Entity – Custom Index Attributes Tab, shows how this tab appears after you choose a date, set the Type to Linked, and select a target dictionary. This custom benchmark is based on the Domestic Equity index, which was in effect since the "as-of" date, 12/31/2010. You enter 300 basis points and adjust for compounding. The grid at the bottom of the tab shows the structure of the target dictionary selected.
See Editing Entity Dialog Box Options for a description of the fields in this dialog box.
For more information about the currency conversion process, see Calculate Returns Using Currency Conversion.

1. In the target dictionary grid area, select the Total Level node of the target dictionary that you want to assign, and double-click the corresponding button for that row.

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1. In the Custom Index Attributes Dialog box, assign the source entity, source, source dictionary, source dictionary node, and weight data, and click OK.

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1. Click Finish.

Additional tabs are available in the entity setup but these tabs are not required for the custom benchmark setup. The custom index attributes information is saved in the database in the RULESDBO.CUSTOM_INDEX_ATTRIBUTES table.

1. If the hurdle based benchmark's source entity changes and/or the basis point adjustment criteria change, you can edit the Linked Benchmark and repeat this process to assign new criteria to the entity history as of the appropriate date for linking purposes.

Otherwise, you do not need to edit your criteria. If the custom benchmark continues to offset the Domestic Index Equity by 300 bps each year, you do not need to edit the entity, and the system restarts the offset each year.
If you update the entity information for each as of date on which the custom benchmark criteria changes, this tells the entity build program that the entity assignment has changed and on what effective date. For example, if the custom benchmark criteria changes to 350 bps above the Domestic Equity Index at some future date, you can edit the custom benchmark accordingly, and link the new custom benchmark criteria to the original custom benchmark criteria.