Category Archives: Business

2016 – Time to get personal

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As 2015 ends and a new year begins, I wanted to reflect on the past few years and plan for the coming year. I was helped by the fact that I had written a New Year’s blog at the start of each year:

  • 2013 was a year of ‘discovery’ – starting a new chapter in my career, developing new skills, facing fears and being bold (Become the hero of your own story!). My big lesson was focus.
  • 2014 was the year of ‘devotion’ (What will you devote yourself to this year?) – My focus was on figuring out what I was going to devote my time, enthusiasm and energy to? I learnt lots of lessons and I found my tribe at Redington.
  • 2015 started as a year of ‘sacrifice’, surrender and pilgrimage for my wife and I. Over the year it developed in directions that I could not have even imagined. I learnt more, wrote more and delivered more than I ever thought possible (15 top tips for a successful 2015).

In 2015, I handed on my youth development responsibilities to a new generation of leaders (after nearly a decade), completed the AltMBA, met the Dalai Lama and Seth Godin, launched Hindu Heroes with my children & friends and contributed to some really cool projects at work…(it’s funny how we never remember our failures and mistakes when we look back – more on that later…).

So what’s my resolution for 2016?

It’s not business, it’s personal…

In 2015, the biggest lesson I learnt is that business is about people (sounds obvious but we seem to have lost the ‘personal’ in pursuit of the ‘professional’).

I was reminded that leadership is about people, marketing is about people and in fact everything is about people. Organisations are just communities of people. People with ambitions. People with hangups and insecurities. People with dreams. People with feelings.

Companies don’t have values or ethics, people have values and ethics. As Seth Godin points out “Corporations are collections of people. Business is too powerful for us to leave our humanity at the door of the office. It’s not business, it’s personal.”

Innovation from the heart

Our corporate jargon like strategy, vision and innovation also miss the mark when they omit the critical human element. There’s nothing wrong with these words, but they’re not the ones that inspire human hearts.

In the words of Gary Hamel “Innovation starts with the heart—with a passion for improving the lives of those around you.” Without tapping into individual passions you just have an ideas box. Empathy is the engine of innovation.

That’s why we should worry about just how de-humanized our organisations have become. If you want to innovate, you need to be inspired, your colleagues need to be inspired, and ultimately, your customers need to be inspired.

“The best innovations—both socially and economically—come from the pursuit of ideals that are noble and timeless: joy, wisdom, beauty, truth, equality, community, sustainability and love. These are the things we live for, and the innovations that really make a difference are the ones that are life-enhancing. And that’s why the heart of innovation is a desire to re-enchant the world.” – Gary Hamel

Understanding people

The more we understand people the more likely it is that we will do great work: from the people we are managing, to the people we are serving; from the people who supply us, to the people who we are persuading.

People are not always rational, people are not one-dimensional, people are not just a number and people are certainly not all the same. We need to understand each person, each tribe and each group, in order to engage, influence, change, manage or inspire.

We need to seek to understand peoples’ dreams and goals, their worldviews, their boundaries and constraints, their assets and the voice in their heads.  This has to be the starting point if we want to tell stories that will grab attention, resonate and mobilise.

Aligning ambitions

Last year, more than ever before, I learnt how valuable it was to spend time understanding and aligning people’s personal ambitions, needs and agendas.

I learnt that success is not from persuading everyone around the table about your point of view but inviting each person to shape, mould and contribute. After all, regardless of how good your idea is, its only worth anything if implemented or executed. It will only be adopted, if people have had a chance to contribute or if helps them achieve their personal ambitions.

The long and short of it is – the more we are willing to change ourselves, the more we are willing to listen and understand … the more we can build and work in highly effective teams.

Leadership

Business is personal. Leadership is personal.

“I think that leadership is in deep, serious, and historic trouble today. I think that leadership needs radical reinvention — and further, that reimagining it is going to require coming squarely to terms with its failures and shortcomings.” – Umair Haq

At Sandhurst Military college they teach all the officers that – “We serve to lead.”. Personally, I think we lead to serve… the words of Clay Christensen really resonate with me “management is one of the most noble professions, if it is practiced well. No other occupation offers as many ways to help others learn and grow…”. 

I’ve learnt more about ‘selfless service’ from my wife than anyone else. To really lead others we have to start by leading ourselves. We need to cultivate our inner qualities of empathy, forgiveness, compassion, rebellion, perseverance, purpose, imagination and passion .

It seems that the more human we are, the more fallible we are, the more vulnerable we are … the more people can relate to us … the more we can understand and engage the humanity in others.

At the start of 2015 I shared 15 lessons/tips for the year. As I start 2016 I just have one…

Resolution

In 2016 I want to lead, to serve and, above all, to make it personal.

In order to do that properly, I need to be more vulnerable. I need to share my thinking, my processes and, most importantly, my mistakes.

Our mistakes are far more valuable for helping those around us feel secure, take risks, deal with failure, learn, grow and be inspired.

Vulnerability is a leader’s greatest asset.

Happy New Year everyone!

Please share your lessons and resolutions too…

What kind of relationship do you want?

What Kind of Relationship Do You Want? from Redington on Vimeo.

This is a video recording of my presentation to 150 fund managers at the RSA on 20th November 2015, at Redington’s Annual Manager Forum.

I talked about how we see our relationship with fund managers, our promise to be open/clear and what we expect in return.

In particular, I invited the fund management community into a strategic relationship with Redington, as we help our clients get smarter, make better decisions, save time and have greater confidence in achieving their long term goals.

Link to video – “What kind of relationship do you want?” (12:55)

Link to all 10 Prezi’s, PDFs and Videos from the Manager Forum

Adapt or die?

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Earlier this week I had the privilege to meet and hear John Peters for the second time in the past 12 months. This time I was determined to make notes so that I could remember his unique lessons (from captivity) on dealing with surprise and change.

“Prioritize your tasks, so you have the capacity to think”.

Who is John Peters?

On 2nd August 1990, Iraq invaded the oil rich sovereign state of Kuwait. By January 1991 Operation Desert Storm went into full effect. Whilst carrying out a dangerous, low-level, daylight raid on Al Rumaylah South West airbase, John Peter’s Tornado was hit by a Surface to Air Missile forcing him to eject over enemy territory. Shortly after parachuting to the ground, the two men were captured by Saddam Hussein’s forces. What ensued was seven weeks of physical and psychological torture. John’s mistreatment was see in the living room of every household as theimage of his bruised and battered face was repeated shown on Iraqi state television. John emerged from his experience in captivity a stronger, more resilient and more confident individual. And whilst one would not ever welcome such an ordeal, he realises that it was probably the making of him.

The big questions he asked us:

  • How are we evolving? All our qualifications and achievements, all our previous experiences got us here. What are we learning today to take us forward tomorrow?
  • How do we remain relevant in a constantly changing world? What did I learn this week? How did I get better? Did I beat my personal best? How did I challenge myself? What did I do outside of my comfort zone?
  • Can people really trust and believe in us? How do we lead? What tone do we set in our business? Do our people know that we will put your life(style) on the line for them?
  • Do we know what we stand for? How do we behave when no one is looking? What can people expect of us when everything is falling apart?
  • Do we look beyond the walls/situation/struggles? Do we create an overall tone that is characterized by hope? Is our passion contagious?
  • How do we deal with failure? Do we hide, lie, acknowledge, learn and adapt? The fear of failure or looking stupid stops us trying, learning, or evolving.
  • How do we make the firm/team culture so compelling that no one wants to leave?

The most important lessons he shared:

His number one lesson about what to do when you don’t know what to do – “Prioritize your tasks, so you have the capacity to think“.

Even our best plans will not go exactly as intended, so how will you prepare for uncertainty and how will you deal with surprise? The challenges, issues and events we will face in the future cannot be predicted but you can determine how you will deal with them. You can only influence your reaction function, tone and culture.

How fast can you learn and adapt? It’s not the big that eat the small but the fast that eat the slow. The speed at which you can complete the circle of design, deliver, execute, learn, feedback… Redesign, deliver…

If you’re working in teams, share, communicate, admit failures and learn fast. “The reason they separate prisoners of war is to avoid them sharing, and learning.”

If we are really willing to be ‘open’ that’s really powerful. Feedback is the breakfast of champions. How much do we reflect and learn?

Manage your self talk; keep positive and keep your head clear so that you can learn; so that you can adapt. You need to control your emotions through your intellect; to ensure you’re emotions don’t overwhelm you; if you move into fight/flight mode you lose 95% of your cognitive ability.

The culture we set of ‘who we are’ and ‘how we behave’ beats planning and strategy every time. Culture is not what you do, but how you do it, and who you are. To manage culture is to manage energy; we need to know which activities block energy, drain or boost energy.

We may think we are in a team, but are we competing against each other or are we completely competing against the people outside? Where do we want to be on that spectrum? Balancing cooperation, collaboration and competition. Red arrows – members are deeply committed to one another’s personal goals and success.

We are creatures of habit. We instinctively learn how to do stuff at a young age and continue to repeat this until its out of date. We all have a success formula that got us to where we are today; however we are not aware of it, we are not conscious of it and we do not evolve it. If we don’t reflect on it and adapt it, we will become irrelevant and ultimately fail.

Human systems are prone to fail; and we are prone to hide it. Even the smartest amongst us surgeons, fighter pilots, etc all do it. As human beings we don’t like failure. We don’t admit to failure. The key to success is to admit your failures. This is a key differentiator.

Leaders find it hardest to identify and admit mistakes; People tell leaders what they want to hear; the fear of failure or looking stupid stops us trying, learning, or evolving.

Maximum performance is right on the edge of failure. You have to keep your company on the edge, failing fast; at max performance. Right before the point of maximum performance, you need to lead with a new system, create what isn’t there yet. If you’re not transforming your team and business you are not a leader.

Companies need leaders because we need to deal with uncertainty; and because we need people to work beyond their known ability/capacity/expectations. Leadership is an attitude, it is a way of life, it is who you are; it is your character.

EEEE:
EDGE: win before you begin, team learning, how fast can you learn;
EXPLORE: experiment and test to fail fast and adapt;
ENGAGE: commit to the success of others;
ENERGY: manage energy not time.

ABC:
Accept the brutal reality (facts do not lie);
look Beyond the walls (otherwise I would not have survived);
Choose your future/make a choice (be completely honest with yourself).

Memorable quotes:

“The key to success is not who you know and it’s not what you know; but what do you do with what you know?”

“How fast can you learn & adapt? It’s not the big that eat the small but the fast that eat the slow.”

“It’s easy like ABC: Accept the brutal reality; look Beyond the walls; Choose your future.”

“Will you choose to compete, collaborate or cooperate? There is real power in sharing lessons, admit failures and learn fast.”

“You need to learn how to control your emotions through your intellect; to ensure they don’t overwhelm you. 95% of your cognitive ability is lost in fight-flight mode.”

“Human systems are prone to fail & we are prone to hide our failures. The key to success is to admit & learn from them.”

The essential C-word in Investment Management

Over the past few years, a number of previously successful asset management firms have blown up spectacularly, unexpectedly tripped up, or surprised us all with how fast they have unravelled. Over the same period, however, relatively unknown players have risen to prominence, and some managers have continued to succeed despite serious knocks. What’s the difference between them?

Extract reproduced from June 2014 edition of IPE: http://www.ipe.com/reports/top-400-asset-managers/top-400-the-essential-c-word-in-investment-management/10002043.article

Busy office culture

For years, I have been trying to answer this question: how to identify those investment managers most likely to fail in advance of their demise?

At Redington, we speak to fund managers, CIOs, CEOs, academics, researchers, clients and colleagues continuously in an effort to determine the key drivers of asset management success and failure.

The most oft-mentioned success factor is culture, although people rarely use that word. Indeed, culture is something of a dirty word in asset management; it is not one that asset management teams talk about, and it is used less by clients and advisers. However, its impact is underestimated until too late. Executive committees at investment management companies spend hours and days discussing incentive schemes, team structures, titles, reporting lines, risk management and regulation. However, if someone mentions culture, a deafening silence ensues.

It is understandable that this factor is ignored and sidelined, given the analytical and inherently cynical nature of most fund managers. Frankly, there is little consensus on what (corporate) culture is, let alone how to influence it and how it affects behaviour. Having said that, culture is not as intangible as many people believe. In my experience, there are plenty of clear, measurable and critical elements of culture that are quite tangible indeed.

Culture is embedded in the unwritten rules colleagues tell new joiners – ‘this is how things are done around here’ or ‘we have always done it this way’. Culture is a set of repeated habits, rituals, narratives and expectations that govern how people do things in organisations, and are based around the inherent values of decision-makers. Culture is a control system that carries the behavioural norms that must be upheld, and determines the social consequences for those that do not stay within the boundaries.

It is not surprising that the UK’s new regulator, the Financial Conduct Authority (FCA), has shown a keen interest in the culture of financial services firms. “Culture is the DNA of the firm,” Clive Adamson of the FCA has said, noting that it shapes “how decisions are made at all levels of the organisation”. He is of the view that “in many cases where things have gone wrong, a cultural issue has been at the heart of the problem”.

Cultures can evolve naturally, be driven by role models or by a management team. Culture is usually carried by leaders, long-serving employees, historical narratives, habits and routines. It is influenced by incentives and sustained through recruitment and management of staff, the induction of new people, and through appraisals and discretionary rewards. Large organisations can have multiple sub-cultures that should not be ignored – the legacy of cultures within acquired units can persist for a surprisingly long period of time.

In my experience, there are 10 dimensions of culture that are critical to determining success, or failure in fund management. These are listed below, each expressed as a spectrum:

  • People focus: Is the business long-term people oriented or short-term results oriented?
  • Star culture: How are successful managers treated? How are support people treated?
  • Self-orientation: Are portfolio managers loyal to themselves, their teams or the company?
  • Conflict tolerance: Are people expected to agree or is conflict and challenge encouraged?
  • Risk culture: Do employees tend to ask permission for everything or do they feel empowered to take risks? Are people trusted or is someone always watching?
  • Approach to failure: How does the company deal with errors, mistakes and failure?
  • Job security: Do people feel secure in their jobs, are they motivated to excel or avoid attention and ‘stay out of trouble’ motivated by career risk?
  • Success definition: Is investment performance, client retention, net sales or share price appreciation the ultimate measure of success?
  • Competition: Are individuals/teams incentivised to collaborate or allowed to compete?
  • Abdication risk: To what extent are problems and issues escalated upwards, or do employees feel responsibility for dealing with issues?

This list is not a ‘yes’ or ‘no’ checklist. The key question is not absolute value or exact position of the firm on any of these cultural questions, but how aware and in control of the culture a management team is. What is particularly interesting when assessing asset manager riskiness is how their position on each of these issues fits together, how the culture has changed or is changing, what new employees are sold, what clients expect and whether there is a disconnect between the leadership and the people on the ground.

A year ago, my new client (now employer) Robert Gardner, founder and co-CEO of Redington, asked me to help develop a system to identify and communicate early warning signals that should be monitored by clients, in order to assist decision making around the engagement with, and timely removal of, managers.

After research and deliberation, 10 early warning signals presented themselves. These have now been developed into a system through which we aim to understand what might go wrong with a manager before any assets have even been allocated to them. We monitor and report on these critical issues on an on-going basis to help clients avoid being caught by surprise.

These 10 key risk factors are:

  1. Business focus on asset gathering and short-term priorities
  2. Increased dependence on a single client or channel (asset persistence)
  3. Weak leadership
  4. Misaligned incentive structures (prioritising asset growth over investment performance)
  5. Increasing key person dependence
  6. Product proliferation and business complexity
  7. Process drift or moving away from core skills
  8. Poor capacity management
  9. Undisciplined growth implications for operational infrastructure
  10. Lack of challenge and accountability.

These are not a series of boxes that need to be ticked or crossed. Instead, they are considerations that help us to understand how a fund management company measures and rewards success, whether a portfolio manager’s interests are aligned with the clients.

It’s early days, but the FCA seems to understand that organisational culture is hard to change and it takes persistence. The responsibility lies with every employee, led by the senior management, and cannot just be delegated to the compliance, or HR department. To change deeply embedded behaviours, senior management have to support the right behaviour through rewards, performance evaluation, employee development and their own actions.

Investment management is a complex business, and it is vital that consultants help clients to understand the various moving parts and key drivers of success or failure. The truth is that every institution, no matter how large, is vulnerable to failure; fund management companies can look strong on the outside despite being sick within.

While it may not be not possible to determine the fate of every firm, we assert that early symptoms, and even underlying causes, can be detected and can be avoided. The challenge is to talk more openly about the C-word, understand corporate culture better and embed on-going assessments of whether an investment manager’s culture is aligned with its clients, and whether it risks creating a negative loop that could drag it downwards.

Click here to read the full article in the June 2014 edition of IPE: http://www.ipe.com/reports/top-400-asset-managers/top-400-the-essential-c-word-in-investment-management/10002043.article

My 5 top tips for winning pitches

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We all have to pitch at various points of our life and career, whether it is an idea, a product, a proposal, a job or to win new clients. I know lots of people really dread public speaking, pitching and presenting as they worry that they don’t possess some mystical presentation gene (fortunately there’s no such thing), the stakes are often high and the pressure can be debilitating.

I used to be terrified of presenting as a young person, but over the years I have grown to really enjoy pitching. I feel like I have spent my whole career developing this skill, both by presenting and being presented to hundreds of times. I see it like a performance – understand your audience, write script, learn lines, rehearse, get into character, add drama, practice, polish and perform. I find it really brings out the actor in me. One of my best mentors always said “it’s all about the DRAMA”. He is spot on, as a presentation and especially a pitch must be memorable and for that it must have some drama.

I’d like to share 5 lessons I have learnt so far about delivering great presentations and winning new business pitches. I’m going to frame it with a story from my past, a single meeting that took my team from winning 1 in 5 pitches, to only losing 1 in 5.

We had built a great product, we had socialised it, received encouraging feedback and delivered excellent performance through a difficult market environment. When we finally got to the stage of being invited to pitch for new business regularly, we found that we kept losing. We were falling at the final hurdle, despite having an excellent product, team and reputation. We couldn’t understand how we were losing 4 out of 5 pitches.

We gathered everyone that was involved with pitches and even hired an external facilitator to help us manage the conversation. The conversation that we had in that 3 hour session and the hard work the followed, changed our success rate from 1 in 5 to more like 4 in 5. For the next 18 months we won most of what we pitched for.

That afternoon we agreed on 5 things as a group and we committed to changing our habits to follow and apply these consistently ahead of every pitch (no matter how busy we got):

  1. Simplify: We simplified our pitch book so that we could deliver the key messages on a single slide, with no more than 6-10 supporting slides. On each slide we clearly explained the BENEFIT to the client (it had to pass the “so what” test). Our pitch book had a clear storyline, it had ‘drama’ and it emphasised clear different points of differentiation (tailored each time for who we were competing against).
  2. Know your client: We mapped all the key decision makers and influencers for each prospect so that we really knew our client. We would reach out to as many stakeholders as possible in advance to understand their objectives, concerns and objections. We also learnt about their level of sophistication so that we could pitch our messages at the right level.
  3. Practice. We started to religiously script and practice our presentations, especially the key messages, Q&A, as well as anticipating possible objections ahead of each pitch. We would role play each pitch in front of our colleagues who were briefed, given roles and asked difficult questions (even though it felt really uncomfortable).
  4. Design the experience: In the pitch we were clear that we needed to leave the client feeling like we had listened to their brief, we had respected their time, we had responded to their questions concisely and we had clearly communicated what made us different. We always aimed to finish well inside of the budgeted time in order to leave more than enough time for their questions when we could really shine and convey our enthusiasm, teamwork, preparation and responsiveness.
  5. Continuous improvement & innovation: No matter how well we did, we continued to improve the pitch, the delivery, the messages, the charts and the story. We also innovated with new slides, new fee structures and even new products that we knew clients wanted.

As I mentioned before, for the next year and half we won most of the mandates we pitched for and we got better with each pitch. As Aristotle famously said – “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”

The only time our success rate fell again was when we grew complacent, started taking short cuts and forgot the routine. Fortunately, we knew what we needed to do to get back on track.

I recently finished reading “The Presentation Secrets of Steve Jobs – How to Be Insanely Great in Front of Any Audience” by Carmine Gallo (it was a birthday present).  It is written in 3 acts (like a play): 1 – Create a story; 2 – Deliver an experience ; and 3 – Refine and Rehearse.

I’ve summarised some of the key messages from the book below:

  • When promoting, selling anything answer the question – Why should I care? Why should my customers care about what I offer?
  • Create a Twitter friendly headline – If you cannot describe what you do in ten words or less, I am not investing. I am not buying. I am not interested.
  • Treat presentations as “infotainment”. Your audience wants to be educated and entertained. Have fun. It will show.
  • 10-Minute Rule – people loose attention after about 10 minutes. Introduce a break in the action: video, stories, another speaker, demo (i.e. some drama).
  • Practice, practice and practice some more.

“Amateurs practice till they get it right, professionals practice till they don’t get it wrong.” – Anon

Whatever it is you are pitching for – be passionate, know why your proposal, idea or product benefits your client, customer, manager or employer and don’t forget to enjoy it.

Best of luck!

Send me your thoughts, experiences and lessons on delivering great presentations, below or on [email protected]

Is your team a ‘Superteam’? Book review

SuperteamsSuperteams by Khoi Tu

My rating: 5 of 5 stars

Super stories, super insights and super learnings from Khoi Tu. An easy read though quite thought provoking for anyone in a team, building a team, running a team or trying to fix a team. Find out why the SAS, the British Red Cross, team Ferrari F1, the Rolling Stones and Pixar are ‘superteams’.

My 7 top takeaways for building superteams:

  1. You need a set of shared objectives (clear common purpose); this is the most potent force in attracting the right talent and in getting them to want to do great work, together.
  2. Great teams are led by great adaptive leaders (there is no single style preference here) but  you have to lead by example and ultimately foster a team of leaders
  3. The best teams start by bringing in the best individuals for every role; however, choose people that know they aren’t perfect, but pursue excellence always and want to get better by surrounding themselves with excellence
  4. You have to get the small things/routines right to create the best environment for success (agendas, team size, engagement rules, clear roles, etc)
  5. Individuals have to respect each others’ skills and contributions and have to build trust in each other in order to thrive under pressure
  6. Avoid comfortable harmony and ‘groupthink’; foster and harness conflict and abrasion to ensure sparks of creativity thrive
  7. You have to continuously improve; reflect, review, feedback and change (“this is how we do things here” – is a killer); always seek ideas for improvement from your team using both success and failure as lessons for learning.

I highly recommend this book.

Here’s a link to Khoi Tu’s TED Talk – http://www.youtube.com/watch?v=wLw4vDveH-s

View all my reviews on Goodreads.

http://www.miteshsheth.com/recommended-books/

Is it possible to identify good fund managers?

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I’ve been involved in identifying, assessing, hiring, developing and managing talented investment managers for most of my career. In 2004, I worked on an initiative, at my then employer, with some organisational psychologists to uncover ‘What are the common traits of the best fund managers?’. A decade later, my current project and the article in this week’s FTfm have brought the question of ‘what makes a really good fund manager’ and ‘is it really possible to identify them through manager research’ back to the surface of my attention. More broadly, I am fascinated by talent, excellence and what conditions help foster a high performance team.  I would love to hear your thoughts, experiences and observations on this subject.

Are manager recommendations from investment consultants really worthless?

I realised early on in my career that the traditional manager research process, as it is most commonly executed, was flawed. So, I have some sympathy with Steve Johnson who writes in this week’s FTfm that “The funds recommended by consultants do no better than any other, and by some measures they underperform the wider market significantly”. He is referring to recent research, conducted on US equity funds, published by Oxford university’s Said Business School. I think he takes it too far in labelling all manager research, done by all consultants, across all asset classes as “worthless”. I don’t agree. I have worked with (and been interrogated by) some great manager researchers, as well as some awful ones, and there are asset classes, strategies and market environments in which good research is invaluable.

It is true that many manager researchers go through the same tick-box exercise of screening out poor past performance, small assets-under-management, new teams, high turnover, etc. It’s easy to ignore funds that don’t neatly fit into a box, in favour of factors that are more easily observed such as business profitability, coherent philosophy, consistent process, risk control, client service and past performance. I can understand why many firms do it this way (it’s easier, more scalable and lower risk), but rigid templates, tick-boxes, rigorous screens and committee decision making kills the best investment ideas for manager researchers (just as it does for fund managers).

Unfortunately, even when consultants conduct face-to-face meetings with fund managers they are not always effective. Fund managers are hugely incentivised to say the right thing and to avoid saying anything that might cause concern. The rewards for getting it right are massive and the cost of getting it wrong is bigger. Fund managers get coached, briefed and trained ahead of due diligence research visits. Only the best communicators are usually presented to researchers. This understanding is so ingrained that roles and promotions often depend critically on communication skills in consultant and client meetings. These many layers of polish take some getting through.

Getting under the bonnet

Over the years my colleagues and I have experimented with a variety of methods to get beneath the surface of managers in face-to-face meetings/interviews:

·  recognising that our main advantage was the power of comparison, we would compare stories for accuracy across different individuals in a team or have face-to-face meetings with all the managers of a particular strategy/sector in a short period of time;
·  leveraging the privilege of being able to interview people at all levels of a company from CEO’s, to fund managers and analysts, to risk managers, operations and support;
·  monitoring what was said in meetings with subsequent on-the-desk research of portfolio positions, key risks, changes to decisions over time and in different market conditions;
·  retaining an element of surprise, visiting managers at short notice (like the Ofsted inspectors that turn up to schools unannounced) and asking to see people who hadn’t been prepared;
·  getting trained in the art of enquiry, asking probing questions around uncomfortable issues, using silences, ensuring that we aren’t just being presented to and focusing the discussion what matters most;
·  forming our own view of third party research, tools and systems, including speaking to the banks/sell-side for their experience of fund managers dealing practices.

One of the most effective techniques I used was to share my research notes with fund managers, appealing to the ‘better angels of their nature’, moving to a much more open and honest basis of engagement.

The common traits of the best fund managers

As I mentioned earlier, I have had the privilege of hiring and managing some amazing investment talent over the years and they tended to have the following traits in common:

·  an ability to make decisions in the absence of complete information (otherwise it can be too late);
·  a natural appetite for taking risk and being at risk (of loss);
·  a clear sense of personal accountability, rather than deferring real decision making to committees;
·  seriously competitive, they compete with some of the smartest people in the world and their performance is visible to all daily;
·  tremendous pride for their craft, they are fascinated by how markets work and evolve;
·  surprisingly imaginative, creative and lateral thinking; they think about “what may happen?”, “what could go wrong?” – which is often the best form of risk management
·  make decisions intuitively, based on years of experience and practice, making it difficult/artificial to articulate how they make decisions, in terms of a clear process. Yet it is a clearly articulated process that so many manager selectors look for.

An aside – The problem with graduate recruitment

Some of the best fund managers I have worked with had not had a conventional financial education. They are not all Maths and Economics graduates. They were not all A-grade/1st class students. They were not all head boys/girls and had not all trained for the Duke of Edinburgh award. In fact for a number of them, their risk taking traits were formed in their early years.

The crazy thing is despite knowing this, most fund management companies only recruit Maths/Economics graduates, who have their sights set on becoming fund managers every year, from the best universities, with the best grades, even though this rarely provides the best material to train a good fund manager.

It’s a real bug-bear of mine as I think investment teams also need to hire fund managers from off-the-beaten-track and seek out those with not only the mental resilience and market savvy but also imagination, risk-taking sensibility and a strong sense of personal responsibility.

Final thoughts

I am a big believer in active management (alongside passive and smart beta management), in particular that some people and teams, in some asset classes and market environments, have the ability to consistently outperform their peers. I have also worked with some great manager researchers and conducted research on asset classes and strategies where good research adds meaningful value for clients. At the end of the day good manager research is not all that different from good fund management.

Going forward, I feel the best consultants will focus their resource and attention on identifying and quickly assessing managers, strategies, or asset classes that have compelling sources of return (to help their clients get in early before the crowd) and even more importantly help their clients get out early enough to not be left with the masses trying to squeeze through a tiny door. Manager research will need to become part and parcel of a good investment process, aligning bottom up with top down, with sole the objective of making money for clients, rather than just picking safe funds and managers.

In my opinion, the best fund managers and manager researchers tend to have one or more of the following sources of competitive advantage:

1.  Information edge – access to better, broader, more reliable or more timely information
2.  Processing edge – ability to sift through data to quickly identify the key issues (qualitatively, quantitative or both)
3.  Decision making edge – ability to make good decisions more often than not (alone or as part of a team) and often in the absence of complete information
4.  Execution edge – ability to access deal flow and the best market pricing, in size and in times of crisis
5.  Resilience / Humility – ability to stick with a good decision in the face of pressure from the business, market or peer group balanced with the humility to know when you’re wrong.

I would love to hear your thoughts (Reply below or to [email protected]sheth.com).

Investment actuaries in the future

IMG_0781Tomorrow evening (Thursday 6th June 2013) I have been invited to facilitate a ‘blue sky’ thinking session at Staple Inn with some of the brightest thinkers in the city of London to come up with the subjects and themes that should drive the Finance & Investment research agenda for the Institute and Faculty of Actuaries (IFoA) over the next decade.

Whilst a career as an actuary* was recently ranked as the best job of 2013** I think identifying the right research directions is really important to ensure that the actuarial profession remains relevant, forward looking and at the cutting edge of the finance and investment thinking in the future.

I have 3 questions for you (both actuaries and non-actuaries are welcome to respond):

  1. What is the most important thing people gain from the actuarial qualification?
  2. What are the biggest challenges and opportunities facing actuaries in finance and investment firms?
  3. What do you think should drive the Finance & Investment research agenda for IFoA over the coming decade?

Please reply to this post or email me on [email protected] with your answers, as well as any other ideas or suggestions by 3pm GMT tomorrow (6th June).

Many thanks in advance,

Mitesh

 

* Actuaries put a financial value on risk – for instance, the chances of a hurricane destroying a beachfront home or the long-term liabilities of a pension.

** The best job of 2013 – CareerCast.com, a career website owned by Adicio Inc., recently ranked 200 jobs from best to worst based on five criteria: physical demands, work environment, income, stress, and hiring outlook. Based on these criteria, a career as an Actuary came out on top. You can find the full ranking here

Management needs reinventing

In this excellent video (click here) Gary Hamel, founder of Management Innovation Exchange (MIX) and one of the world’s most influential business thinkers, explains why management is out of date and needs reinventing to make it fit for the future and fit for human beings.

Many of management tools we use today were invented before 1920, as we entered the industrial revolution. The problem that management was invented to solve was – how do you organise human beings into semi-programmable robots that deliver consistently, efficiently and on time? How do we get farm hands to turn up on time, to do the same thing every day, over and over again? Our management structures were built to solve this problem and we were successful, but that is not our challenge today!

We face unprecedented challenges today: exponential change; hyper competition and creative destruction. Knowledge itself is becoming a commodity. Our challenges today are: how to create organisations that can change as fast as change itself; where innovation is the work of everybody, all of the time, everyday; where people are willing to bring to work the gifts of their creativity and passion. We are struggling to create organisations that are adaptable, innovative and engaging.

To deal with this Vineet Nayar, CEO of HCL Technologies (India) created ‘reverse accountability’ where all his employees rate their boss rather than the other way around. This is a culture where people hold their management accountable. It may not be for everyone but Vineet firmly believes that all value is created in the interface between the employee and the customer and so a manager’s job is to encourage the innovation there.

“My employees are more important than their managers; in fact they are more important than our customers. Unless I take care of my employees they are not going to work hard for my customers” – Vineet Nayar, HCL Technologies

In this video Gary Hamel says promotes aspiration, being a contrarian and learning from the fringe:

  1. Aspiration – Innovation starts with aiming high
  2. Be a Contrarian – Next you have to be willing challenge dogma, confront embedded and unexamined beliefs that limit us and our organisations
  3. Learn from the fringe – innovation happens at the edges.
To make our organisations future-proof we need to instil some of the values that underlie the success of the the Internet which is inherently adaptable, innovative and engaging.
We have an amazing opportunity to create organisations that are fit for human beings, because as humans we are already adaptable, innovative and engaging. We already have many of the qualities our organisations don’t, because they were built to serve another purpose.
I want to be a champion for the future and help build more human organisations that fully utilize and honour the gifts of every single person who comes there every day.
What about you?