Category Archives: Fund Management

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

Controlling our Lizard Brain could help us make better decisions

AltMBA2 Lizard

Our brains have developed considerably since early primates diverged from other mammals about 85 million years ago. However, increasingly, behavioural psychology studies are showing us how one part of our grey matter has not changed: our ‘lizard brain’.

The lizard brain, or the limbic system (the thing keeping a lizard’s mind ticking), was used by early humans as a primitive ‘fight or flight’ response. It was also a mechanism for weighing up feeding and procreation options.

Fast forward several million decades, and it has been identified this prehistoric part of our brain is now central to the processing of our memory, decision-making, and emotional reactions. Increasingly behavioural science is examining how controlling your lizard brain can have a profound effect on the way we solve complex problems, from finding a life partner to making better investment decisions.

Quick-fix solutions

The lizard brain enjoys the short-term game. It prefers immediate and quick-fix solutions. It is more fearful of loss than hopeful of gain. This is great for low-value decisions like crossing the road or choosing a hamburger. But engage your lizard brain with anything more complex, and there can be disastrous consequences.

The problem is the framework of the lizard brain emphasizes a narrow spectrum of information; obsessing about previous data while discounting future uncertain indicators. This ancient structure exerts powerful and often unconscious influences on behaviour; and, in the world of investments, it may explain why experienced investors buy at irrationally high prices and sell at irrationally low ones. Lizard brain thinking may also lurk at the bottom of financial catastrophes.

Behavioural psychologists talk about the lizard brain being essentially resistance. It is that little voice in the back of your head, the one telling you something will never work; the one which worries people will laugh at you.  And when under pressure, with the stakes raised and people watching, rather than rationally appraising all the options, the lizard brain instinctively strikes. Behavioural research shows consistently employing an instinctive response in complex, high stake decisions has a negative outcome.

You can read the full article on –

Can I help you to make change happen?

One way street

As many of you know I’m coming to the end of my one month course – Seth Godin’s AltMBA – which is all about “making change happen”:

  • It’s been a part time, one month long, online course run by Seth Godin and has taken up all my evenings and weekends.
  • It has been an intense, stretching and eye-opening experience (one more week to go).
  • It takes a very different approach of working, learning and collaborating. I think it offers a glimpse into the future of education. I have loved it and have learnt so much.
  • I’ve completed 11 projects over 3 weeks with 25 other people based in France, Ireland, South Africa, Nigeria, Singapore, Boston, New York, California, and India. (It’s taken up every morning, evening and weekend since 15th June).
  • I’m now into my final week with 2 final projects to go.
  • Here’s the application form for anyone interested in applying for a future cohort (you can give my name as a reference):

For my final challenge (Project 13) I need to organize and run a live event to teach others what you’ve learned in altMBA. Seth’s brief is –

“Not everyone is able to do the course themselves. Sharing is a generous act, a gift. 10 people (minimum) must attend. It can be at work, at a group you’re part of, or for strangers. It can be offered free or with paid admission. But at least 10 people have to come, and you have to be in charge. It needs to take place no more than four weeks after the end of the altMBA. This is the culmination of everything we’ve learnt so far…”

I would really appreciate your input on this. I haven’t yet figured out whether to do this at work, at home or an independent venue; whether to do a 1 hour summary, a half day interactive workshop ora one week series of mini altMBA experience.

My question for you is –

Are you interested in attending? What would like like to get out of it? Who else do you think might benefit?
How much time do you want to give to it?
How deep would you like to go?

Please reply to this message or email me on ‘[email protected] with your thoughts.

For those of you who wanted to read one or two of my AltMBA posts they are all public; but to make it easier I have listed them below (and tried to categorise them):

General Business:

Project 12 – Launching the ‘Future Leaders’ program (3 minute video on helping others to make change):

Project 11 – Death is not the end it is just a shedding of skin (What if Apple did Savings & Investments):

Project 7 – I have a problem with Hierarchy (Organisational Change):

Business Development/Sales:

Project 8 – We are all in Sales and we haven’t got a clue (Closing the Sale when decisions are irrational):

Project 5 – Be the change you want to see in your clients (Inspiring change):

Project 4 – You were right to choose the competition (Understanding worldviews and empathy):

Redington/Pensions & Investments:

Project 12 – Launching the ‘Future Leaders’ program (3 minute video on helping others to make change):

Project 5 – Be the change you want to see in your clients (Inspiring change):

Project 4 – You were right to choose the competition (Understanding worldviews and empathy):

Project 2 – What is the difference between a dream and a goal (7 steps to Goal Setting):

Project 1 – Make better decisions in 5 minutes (using decision trees to decide what to do if a star manager leaves):

RedSTART/Saving/Financial Education:

Project 10 – If you don’t stretch your limits you set your limits (How do our Assets, Boundaries & Narratives limit us?)

Project 5 – Be the change you want to see in your clients (Inspiring change):

Project 2 – What is the difference between a dream and a goal (7 steps to Goal Setting):


Project 9 – He didn’t belong and that made him sad (How self-imposed constraints kill our dreams/How can we scale/leverage them)?:

Project 6 – Are you a guardian of the future? (Creating a campaign for change – Global Warming):

Project 3 – 4 strangers, 48 hours and 101 ideas (Using Business Canvas to brainstorm 101 new business ideas)

Hope you enjoy them. It’s hard to believe but each of these was written within 24 hours. I welcome your feedback; it’s a gift!

Don’t forget to send me your thoughts on what you’d like to get out a live event covering the ‘top tips for making change happen’?



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:

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:

When to fire your fund manager

I spoke about “Knowing when to fire (& when to retain) your fund manager” at Fund Manager Selection 2014 this week.

Here’s a link to the Prezi.

I’d love to hear your thoughts on this.

What are the most important red flags for you? Are there other early warning signals you look for?

My 5 top tips for winning pitches


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 it possible to identify good fund managers?


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]

Outcomes revolution in investment management & pharmaceuticals

IMG_0744In this month’s issue of IPE Mitesh Sheth outlines what investment managers can learn from the transformation taking place in the pharmaceutical industry.

03 June 2013

I was recently invited by Sanofi, the fourth largest healthcare company in the world by prescription sales, to talk to 500 of their UK and Irish employees about my experiences with innovation in the investment management industry. As I prepared for the presentation, talked to Sanofi’s leadership team and participated in their workshops, I came to realise the massive parallels between the pharmaceutical and fund management industries. Both industries are in the middle of an outcomes revolution.

Investment outcomes in investment management

I was first drawn to investment management, having been a pension fund consultant and manager researcher at Towers Watson in 2005. I joined David Jacob, head of fixed income at Henderson, determined to design better investment products and solutions for institutional clients. I felt strongly that clients shouldn’t care about index benchmarks, narrow asset class definitions, regional boundaries and deceptive strategy labels (like hedge funds) in achieving their overall investment outcomes – be that income, capital preservation, beating inflation, long-term growth, and so on.

We built a risk budgeting and capital-allocating ‘investment strategy group’ at the centre of the investment process. This allowed us to engage with our clients (and their ultimate clients) around their goals, risk appetite and time horizon in designing and delivering investment outcomes. With a focus on outcomes, we brought together high yield and investment grade analysis, developed market and emerging market analysis, as well as cash bonds and derivatives expertise to give clients access to the fixed income universe against their choice of benchmarks and targets.

I still believe clients should begin with the end in mind. Our starting point should be: where am I today; where do I want to get to and by when; how much risk am I willing to take (what return volatility would be uncomfortable and what’s my maximum drawdown); and what cash flow (or liquidity) do I need along the way. This is true for a pension fund, an individual investor, a family office, a sovereign wealth fund – in short, anyone.

Background to the pharmaceutical industry

The pharmaceutical industry has changed a lot over the past few decades but at its core it still develops, produces, markets and distributes drugs licensed as medicines. Drug discovery and development is very expensive as only a fraction of all compounds investigated are ever approved for human use. To cover these costs a company needs to discover a new blockbuster drug (one which generates revenues in the billions) every few years.

The industry has been growing at a rapid rate since the 1970s, as legislation allowing for stronger patents has come into force in most countries, helping pharmaceutical companies to generate significant profits from their patented products. In recent decades, a handful of large companies have dominated manufacturing of medicine around the world, supported by numerous mergers and acquisitions.

Pharmaceutical companies have been great cash generators for shareholders over the past 20 years, and IMS Health values the global pharmaceutical industry at over $800bn (€620bn). But while healthcare ought to be simple at its core, layers of management regulation, processes, policies, business models and acquisitions have complicated pharmaceutical organisations and the healthcare industry over the years – creating a global problem today that itself appears to defy definition.

Drivers of change

The market capitalisation of the largest pharma companies is expected to come under significant pressure in the coming decade. Over the next few years patent protection on historical blockbuster drugs will continue to run off. Regulators are demanding more affordable and cost-effective therapies. In addition, there is an industry-wide research-and-development pipeline gap meaning there are no big blockbusters on the horizon.

Furthermore, there is a growing demand for personalised healthcare challenging the current business model, with new competitors with new business models emerging and gaining in strength.

To add to its woes, the industry’s image has been damaged by accusations of disease mongering, bribing doctors, false claims and illegal marketing, not to mention the high profile court cases. Bestselling books such as Bad Pharma (2012), Side Effects (2008) and Big Pharma (2006) have built on the public’s impression of big businesses putting profits over patient welfare. Even Hollywood portrays pharma as a global, shadowy force (not unlike the way in which the investment industry is portrayed).

The industry has survived a continuous series of regulatory, scientific, social and political challenges in the past. However, the changes it faces today from regulation, competition, commoditisation, technological advances, austerity and public perception are significant on their own and even more disruptive when considered together, demanding a more radical response.

Parallels with fund management

These forces of change are very similar to those facing the fund management industry (global assets under management are estimated by IPE to be around €39.2trn):

• Historical blockbuster products are being commoditised;

• Intense competition is putting pressure on margins;

• Disillusioned clients and customers are frustrated with fund manager self-interest;

• Regulators are ever more intrusive, demanding more transparent charging, better management of conflicts and clearer marketing;

• Technological development is spawning new products, new business models and new avenues for client communication;

• Economic austerity, low growth and on-going cost cutting mean clients and end-customers want more for less.

Pharmaceuticals, like fund management, are B2B businesses in that the customers are essentially not the end-patients but the intermediaries – the healthcare professionals, doctors, consultants and pharmacists. These intermediaries are facing change and disruption of their own with intense regulation, flat budgets, pressure to cut costs and growing patient demands, much like the pressures on IFAs, platforms, banks, insurance companies, pensions consultants and funds.

With this roller coaster of changes and resultant uncertainty about the future, the only constant that pharmaceutical and fund management companies can hold onto is putting the end-customer (patient) at the centre. Both industries need to transform from being product centric to customer (service) centric; from pushing drugs and funds to helping customers improve their health and wealth.

Pharmaceuticals and fund management are in the midst of an ‘outcomes’ revolution. This is a huge undertaking and it cannot be achieved through a series of incremental steps or a long list of initiatives. Such fundamental changes call for a focused and radical response, leveraging one’s strengths.

Pharma’s response

Historically, large pharmaceutical companies have reacted to market pressures by cutting costs, and on the face of it this time is no different. If you look deeper though, there is a realisation among senior leaders that cost cutting is short term and incremental, and it will not address the fundamental shift they are experiencing in the competitive landscape.

They know that their entire business model needs to be looked at differently.

Sanofi (and the other major pharmaceutical companies) have recognised the need to shift from being a product marketing company to becoming a customer relationship business.

They believe that while having great products was enough to drive success in the past, this nowadays creates diminishing returns. They know that their future success will be determined not just by how many drugs are sold, but how well their products, services, tools and education have helped to improve or maintain a patients’ health and wellbeing.

Their revenues will still come from product sales, but the reason why customers will want to buy from pharmaceutical companies is changing. They need to offer their customers more for less and create an ecosystem of products and services around the end-patients’ health outcomes.

For example, in 2012 Sanofi and Agamatrix launched a new type of blood glucose monitor, which also connects to a smart phone. This allows patients to track glucose levels continuously and give them access to a telephone hotline and other support services, which earns Sanofi considerable customer loyalty. This shift to integrate products with innovative monitoring technology and personalised support services was possible because Sanofi listened to the needs of patients with diabetes.

With any change in strategy it is critical to diagnose your problems honestly and to leverage your strengths to differentiate your business. Pharma companies continue to build a stronger product portfolio through deals, partnerships, alliances and virtual R&D to access a broader universe of research companies.

However, they know not to stop here. Their sales people know their customer and they have unparalleled access and information. The best pharma companies are determined to build on this to be the partner of choice for their customers and to go beyond that in building a relationship with the end-patient too.

Pharma companies are breaking down silos (diabetes, oncology, generics, and so on) to use key account management techniques to ensure their customers do not get lots of different sales reps trying to get a share of their limited time. Instead, they are working on a single point of contact which understands the customer’s needs and offers support, education, services and products to help meet patient health outcomes. They are learning to think and care more about the customer and the patient (their needs, their experience and their long-term relationship) rather than just focusing on the disease, the drugs and their profits.

There is a significant effort being made to transform how medicines are presented, marketed and sold with a better understanding of stakeholder needs, demonstrating clear value for healthcare professionals and end patients. Sales reps are increasingly becoming a conduit of best practice among healthcare professionals, making links and introductions between stakeholders. The best are helping their customers – the intermediaries – deal with their challenges, as well as the steps, processes and tools to get to where they need to.

I am most impressed with the acknowledgement that this requires a major shift in attitude, behaviour, people and culture. Significant training of senior leaders, middle managers and other employees is underway. Employee-led customer-centric innovation is a powerful way of achieving this kind of culture change. In the past pharmaceutical innovation was limited to product development much like in fund management. Pharmaceutical companies are starting to use innovation more broadly across their employee base to improve business efficiency and customer service too. This requires giving employees permission to take risks and experiment with new ways of working without the fear of failure.

Taking a blank sheet of paper to fund management

The vast majority of investment management companies are not structured around their clients’ needs and outcomes. They are built around fund, asset class and regional silos that operate independently with limited dialogue, interaction and collaboration. A handful of houses have created successful outcome teams or divisions – with LDI or multi-asset specialists – though even there the challenge remains to apply this way of thinking to the rest of the business.

Senior leadership in investment management houses does not yet accept that the investment management business model needs to be overhauled. There is no overall drive to move the business from being product marketing to client relationship centric, and no corresponding plan to shift attitude, behaviour, people and cultures. Innovation remains a product manufacturing activity.

As an industry we need to look at the end investors and clients, rather than just being focused on the intermediaries and consultants, and start to ask ourselves how we can work together do a better job for them.

Some of the more dynamic, agile and client-centric investment managers are starting to realise this and are taking it seriously. Here are some lessons we can all learn from the disruption facing the pharmaceutical industry and their response:

  1. Our clients’ focus on outcomes will affect our whole business model not just a single multi-asset product area;
  2. A central risk-management, risk-budgeting and allocation team is essential in responding to clients’ needs and designing/delivering investment outcomes;
  3. Break down silos between funds, between equities and fixed income, between manufacturing and distribution, between back/middle office and the front office and between the corporate/board and the business to work together to deliver better outcomes for the end client;
  4. Focus on our strengths, rather than being all things to all people. Build alliances and partnerships with specialist investment boutiques and complementary players;
  5. Rebuild trust by putting the end-customer at the centre of our business. Help the clients and intermediaries deal with change and work together to deliver better solutions for the end customer;
  6. Train sales people to behave more like well-informed, trusted advisers. They must be able to listen and draw out client’s unarticulated needs. They must be able to offer advice and assistance to help our clients reach their overall strategic goals;
  7. Foster a client-centric, employee-led innovation culture beyond product manufacturing;
  8. Give our employees permission to take risk and experiment with new ways of working, without the fear of failure.

Finally, it is all too easy to stick to what we know and who we know. If the investment management industry wants to adapt, innovate, transform and engage, we need to include people with different perspectives, with different experiences and expertise; intentionally draw on customer insights, employee ideas and other industry perspectives.

I think if senior leaders in investment management commit to becoming fit for the future they will be blown away by how many middle managers, employees and clients volunteer their time, ideas and enthusiasm to solve these complex industry challenges.

If we get it right, our clients will be more successful in meeting their investment outcomes and our employees will thank us for investing in them and for helping them to do the best work of their lives.

Here’s a link to the full article here. 

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,



* 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 –, 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

Take a blank sheet of paper to fund management


How would you design a fund management business for the future, if you had a blank sheet of paper today?

I was talking to a leading industry figure yesterday about what was wrong with the fund management industry and why I’d like to redesign it, when he asked me “… so what does your vision for the fund management business of the future look like?”.  With a blank sheet of paper, how would I design a fund management business for the future? This was only the second time anyone had ever asked me a question like this. The first was David Jacob, just before I joined Henderson to help him restructure the fixed income team.

In a sentence if I was building a fund management business today for the future I would  design it around the investment outcomes that clients need. I have never written this down before but after yesterday’s conversation I felt inspired to share my thoughts on the future of fund management and invite other perspectives on it.

Back to the future

When David and I designed and built the fixed income business at Henderson, we focused on getting buy in from our clients and their advisers for our overall vision and our new investment strategy group (that did risk budgeting and asset allocation). Firstly, this better met their needs. Secondly, it meant that once they were comfortable with that they would give us discretion to manage their risk across different underlying asset classes, capabilities and products subject to their risk budget and overall guidelines. Finally, it made it much easier to develop and launch new products that were run out of that team/process.

Today I would start in the same place, but with greater audacity. I have seen too many fund management companies build around asset classes and regional equity silos. This is not in the clients’ best interests and it makes no sense for the future. Clients want outcomes – they want their capital preserved, they want to draw a predictable level of income, they want to beat inflation over the long term, etc. The demand for LDI, hedge funds, absolute return, diversified growth, fiduciary management, global income, inflation protection demonstrates this shift.

Ignore the label

Frankly, clients couldn’t (and shouldn’t) care about asset classes, regions, styles, etc. Asset class labels are not a very helpful way of managing a portfolio; and definitely not a useful way of designing a fund management business.  Yet most are split into independent asset class silos with a clear grading of importance based on the fees they can charge clients. Hedge funds and private equity sit at the top of the pile, followed by property, credit and then government bonds, LDI, solutions, or passive funds at the bottom. “Hedge funds” (“private equity” and “bonds” for that matter) is a deceptive label that can represent a myriad of different capabilities, styles, liquidity and risk profiles.

If what clients want is an outcome or an ultimate goal their starting point should be: where am I today; where do I want to get to and by when; how much risk am I willing to take (what’s return volatility would be uncomfortable and what’s my maximum drawdown); and what cashflow (or liquidity) do I need along the way. This is true for a pension fund, an individual investor, a family office, a sovereign wealth fund, in short, anyone.

An ‘outcomes’ hub

I would build my ideal fund management business around the clients’ needs and therefore around a central risk management, risk budgeting and allocation team. This can’t be a committee of the great and the good, it can’t be just one star manager, and it can’t really be larger than 4-5 people. Each person must bring some distinct perspective and therefore value to the group but clear decision making accountability is critical.

Specialist spokes

Around this hub I would have a series of specialist capabilities (spokes) with 3 critical elements, as follows:

1. I wouldn’t try and be all things to all people. So many fund management businesses have way too many specialist capabilities, many of which consistently deliver pedestrian benchmark performance at best. The key to success in any business is to focus on your areas of differentiation and opportunity. Most CEO’s I’ve met are very proud and want to manufacture everything in house. They wouldn’t dream of investing in a competitors fund even if it’s better. I would not manufacture everything in house. I would outsource any asset that is liquid and commoditized to an external (passive/scale) manager – regional and global large cap equities, government bonds, commodities, etc.

2. I would build my internal capabilities around areas of what I call ‘structural competitive advantage’. When we built our fixed income team, we hired analysts that could straddle high yield and high grade by industry, as well as physical and synthetic credit. Later we merged our developed and emerging market rates teams.  We should have merged our high yield and loans teams. We were looking at building a team/product that invested across property debt and CMBS. In addition, today I would build specialist teams that invest across a company’s capital structure (equity, convertibles, loans, private debt and public debt and derivatives); the same is true for a property and an infrastructure project’s capital structure. I would also have teams that have skills in various less liquid risk premia including commercial real estate debt, infrastructure debt, maybe even corporate lending, social housing, insurance linked securities too.

These are areas of structural competitive advantage because we live in a specialised world where most fund managers and analysts miss the dislocations, mispricing and opportunities that exist along the intersections.  A lot of these fall between the gaps of two adjacent specialists/teams that don’t talk to each other, don’t share insights and use different tools, approaches and buying criteria. More importantly this is not easy changes for most fund management businesses to make as they are structured along these specialist lines with each team having different levels of compensation, each fiercely competitive and each thinking they are better than the other.

3. My specialist teams must offer flexibility rather than holding the business hostage. Too many CEOs become hostage to their specialist teams/stars that have usually grown too large to risk them walking out (client loyalty is with the manager rather than they company). On top of that, once you have invested in a specialist capability, within a broader multi-asset/strategy portfolio, there are lots of barriers to taking your money out (especially if that underlying capability relies on your allocation). If you manufacture specialist teams in house they must have stand alone clients and be credible/saleable on their own too.

However, you don’t have to own/run a capability to be able to use it (given the headaches involved this should be preferable).  I would invest in, take a stake in, have a distribution agreement with and/or build an alliance with a whole host of fledgling, specialist investment boutiques built around exceptional minds with specialist skills, knowledge and insight into a particular market, asset, tool or technique. Many of these are crying out for support, distribution, alliance and capital.

Re-working distribution

This brings me onto distribution. Having a well oiled, connected and regarded distribution capability is fundamental to fund management success. Most fund management groups have separate retail, wholesale, institutional, property, private equity and hedge fund sales and marketing teams that are independent, earn different levels of compensation, have different sales incentives, are very competitive and share nothing. This might have made sense in the past but it absolutely does not make sense for the future. Retail IFAs and platforms are rapidly institutionalising; institutional investors buy retail and hedge fund products; property and private equity investors are buying debt products; and the rapidly growing DC market straddles retail and institutional approaches.

My salespeople would be trusted advisers, more like consultants and problem solvers, than sales people. They would absolutely align themselves with the type of client/investor they are responsible for (so channel specialisation still has some role to play). They must be able to listen and draw out client’s unarticulated needs, they must understand markets and be able to offer advice/assistance to help their clients reach their overall strategic goals.  As part of that they will naturally be able to offer internal outcome-oriented products, specialist underlying capabilities (whether manufactured internally or by a partner, or competitor) and even co-design new products. Either way they client will always see them, will always take their call and will always be willing to meet them because they see them as serving their needs & helping them achieve their goals.

Top 5 outcome-oriented flagship products

My top 5 outcome-oriented flagship products would be: inflation protection, inflation plus/real return, multi asset target return, all weather and global diversified income. These underlying capabilities should be offered in different regions, to different sales channels and at different targets (RPI+2%, Cash +4%, 6% income, etc.).  To really leverage an investment capability (given the bulk of your costs are the fund management manufacturing) I would want to offer the same underlying skills/risk premia into different channels and markets, even packaged into different funds or wrappers. This requires co-ordination amongst sales channels to understand what an investment capability/skill/risk premia can offer their clients, and how it needs to be packaged to meet their needs. From this comes a product development strategy. However, most fund managers don’t do things this way.

Seeding new products

Seeding new product is difficult and they need to be launched and run at critical mass for at least 3-5 years before any sales team would sell it widely. Any new product must be launched with internal seed money, manager/employee co-investment and at least one client seed investor.  Also to launch a new product you should have to shut down an old/out-of-date product at the same time (even if it is profitable). The discipline of this is critical as too many fund managers have too many funds, and can never close them down because they are all marginally profitable. However, they miss the fact that this long tail of capabilities eat up a huge amount of resource, add to operational complexity, distract you endlessly and weigh down a business.


Clearly none of this design and structure matters if you are not able to deliver investment performance consistently, within reasonable risk parameters, to help your clients reach their goals. Having said that, performance itself is not enough to make a successful fund management business. It is critical that clients are educated to measure performance and monitor portfolios over a long enough time horizon.  Delivering relevant, timely and pertinent reporting digitally, in writing, by video and face-to-face with helpful milestones highlighted along the way should make this easier to achieve than ever before. Moreover, this approach might also minimise the reporting burden and short-term measurement impact on the fund manager too.

Which brings us onto the subject of hiring the right people, the best talent and the brightest investment minds to deliver the best investment performance. Do you just throw a lot of money at them? Do you go out of your way to accommodate their individual demands? Now that’s whole different subject for another day.

This is just my gut feel and a bit of ramble.

How would you design your ideal fund management business for the future, with a blank sheet of paper?  I’d love to hear your thoughts on this.