Category Archives: Future thinking

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): http://goo.gl/forms/RR470HLG9q

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): https://altmba.com/miteshsheth/launching-our-inaugural-future-leaders-program/

Project 11 – Death is not the end it is just a shedding of skin (What if Apple did Savings & Investments): https://altmba.com/miteshsheth/death-is-not-the-end/

Project 7 – I have a problem with Hierarchy (Organisational Change): https://altmba.com/miteshsheth/i-have-a-problem-with-hierarchy/

Business Development/Sales:

Project 8 – We are all in Sales and we haven’t got a clue (Closing the Sale when decisions are irrational): https://altmba.com/miteshsheth/we-are-all-in-sales/

Project 5 – Be the change you want to see in your clients (Inspiring change): https://altmba.com/miteshsheth/be-the-change/

Project 4 – You were right to choose the competition (Understanding worldviews and empathy): https://altmba.com/miteshsheth/right-to-choose-the-competition/

Redington/Pensions & Investments:

Project 12 – Launching the ‘Future Leaders’ program (3 minute video on helping others to make change): https://altmba.com/miteshsheth/launching-our-inaugural-future-leaders-program/

Project 5 – Be the change you want to see in your clients (Inspiring change): https://altmba.com/miteshsheth/be-the-change/

Project 4 – You were right to choose the competition (Understanding worldviews and empathy): https://altmba.com/miteshsheth/right-to-choose-the-competition/

Project 2 – What is the difference between a dream and a goal (7 steps to Goal Setting): https://altmba.com/miteshsheth/dreams-vs-goals/

Project 1 – Make better decisions in 5 minutes (using decision trees to decide what to do if a star manager leaves): https://altmba.com/miteshsheth/make-better-decisions-in-5-minutes/

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?) https://altmba.com/miteshsheth/stretch-your-limits/

Project 5 – Be the change you want to see in your clients (Inspiring change): https://altmba.com/miteshsheth/be-the-change/

Project 2 – What is the difference between a dream and a goal (7 steps to Goal Setting): https://altmba.com/miteshsheth/dreams-vs-goals/

Personal/Spiritual:

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

Project 6 – Are you a guardian of the future? (Creating a campaign for change – Global Warming): https://altmba.com/miteshsheth/guardian-of-the-future/

Project 3 – 4 strangers, 48 hours and 101 ideas (Using Business Canvas to brainstorm 101 new business ideas) https://altmba.com/miteshsheth/101-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’?

Thanks,

Mitesh

Dreams, Goals & Better Decisions

It is coming up to the end of week one on Seth Godin’s Inaugural AltMBA. It has been an intense, stretching, exhausting, exciting, terrifying, challenging, anarchic, productive, moving and inspiring experience. The AltMBA is a revolutionary way of working, learning, collaborating and expanding your perspectives. It offers a glimpse of the future.

We are one week in. I’ve been working with a learning group across Singapore, India, Malta and Ireland. I have shipped my first two projects with support from my learning group, guidance from my coach and feedback from dozens more on the course (third assignment in progress):

1. How to make better decisions: https://altmba.com/miteshsheth/make-better-decisions-in-5-minutes/

2. How to achieve your goals:
https://altmba.com/miteshsheth/dreams-vs-goals/

Alt MBA - books

I wanted to take a moment to reflect on my experiences of this revolutionary way of learning at the end of the first week.

What challenges have I faced?

  • To get to know my learning group of 4 strangers overnight, to understand each other’s stories, ambitions and fears and to be vulnerable so that we can help each other perform and succeed.
  • To produce work at short notice, that feels incomplete, send out publicly for anyone to read, review and criticise.
  • To receive the feedback given openly without getting defensive and to honestly reflect on it in order to learn.
  • To see the incredible work produced by such talented people without feeling insecure or inadequate.
  • To keep on top of the discussions, comments, emotions and inspirations of 100 people across the globe.
  • To manage my work schedule and family commitments with the intense workload of the AltMBA.

What have I learnt

  • That decision trees are a really powerful way to de-emotionalise decision making and shed light on options you may not have considered.
  • That goals need to be specific, with clear identification of obstacles, requirements and a clear plan.
  • That it is far easier to give advice to others on how they should do their assignments than it is do apply that advice yourself.
  • To read, reflect, discuss, share, debate, write and publish at speed (every 48 hours).
  • To not judge others but to work hard to understand their story, background and perspectives so that you can see their best self and identify the value they can offer.
  • To receive constructive feedback as a gift and to invite criticism to learn more and faster.
  • To add a P.S. to my work 24 hours later to capture any lessons learnt, feedback, follow up thoughts and ideas. Doing it this way allows you keep a record. You can also see your progress.
  • To use new online tools for effective communication: DisqusZoom, Slack and Digg.
  • That I am not as good at managing my time as I thought I was.
  • That I am not as good a writer as I thought I was (plenty to learn).

What has been surprising?

  • How quickly you can learn and absorb an idea by prototyping and submitting in a short timeframe.
  • How quickly strangers can come together and collaborate effectively when driven by a common goal.
  • The importance of vulnerability to open up a group to work effectively.
  • How you can work together effectively with different people, with different work situations in different time zones.
  • How valuable it is to ask for and receive constructive feedback.
  • How much time, energy and effort we spend coaching, guiding and helping others on the course
  • How many hours there are in a day.

I can’t believe that it has only been one week. I wonder how I will feel at the end of this process. I feel like I haven’t even scratched the surface of what this process and network is capable of achieving and illuminating.

I am looking forward to getting to know my new learning group next week, as well as the next three new assignments.

This weekend’s we are studying Business Models to come up micro-business plans for 99 new businesses (let me know if you have any ideas).

Wish me luck!


 

Here’s a link to my first two AltMBA assignments if you’d like to learn more about decision making and goal setting:

1. How to make better decisions:

We make decisions more than we make anything else. We make so many decisions of such importance, with wide-ranging implications everyday. This is true for our person life and in our professional life. The truth is we desperately need a disciplined, systematic and simple process for making decisions, in every aspect of our life.

https://altmba.com/miteshsheth/make-better-decisions-in-5-minutes/

Decision Trees

2. How to achieve your goals:

We know that to make your dreams a reality, you have to be SMART: write down your goal as clearly as you can; put a date on it
list all the obstacles you’ll have to overcome (external & internal)
identify the skills, knowledge, the people and groups that can help you; spell out a detailed plan of action; you need to remember “why” you are doing it and what your purpose is as this will get you through the rough patches.

 

https://altmba.com/miteshsheth/dreams-vs-goals/

Goals

AltMBA: Reinventing the MBA

It all began just 4  weeks ago when I received this email from Seth Godin’s blog (http://sethgodin.typepad.com/seths_blog/2015/05/a-different-way-to-move-forward.html).

Seth has been often quoted saying:

The traditional top-tier MBA takes two years, you usually need to move and it costs more than $125,000. The best business school experience is transformative. It exposes students to a new way of thinking as well as a cohort of fellow travelers, motivated, smart people in a hurry to change things. What’s changed is that access to information is no longer the reason to go to business school. The information is everywhere. Our goal with the altMBA is to assemble leaders (corporate executives, non-profit linchpins, founders, managers and people in a hurry) and to connect them and amplify their work. Without leaving home. In just a month of intense effort. Instead, we’re organized around action, around publishing, around sharing your work and learning from it.

Alt MBA 2

In his blog on 12th May 2015 he announced that he is finally launching the inaugural class of altMBA. It was going to be a real-time, month-long intensive program. This was going to be a small-group process that works online as well as through hands-on projects. The focus of the program was going to be on group work, leveraging the power of collaboration, both by learning from and teaching others.

As soon as I read it I knew I had to apply. I consulted my wife, my friends, my team and my bosses to check I wasn’t being impulsive; but all were supportive. Redington encouraged me to use my current strategic projects for the assignments (as appropriate) and to do the course at work and around my work.

So I applied. It was a very different type of application form and there was a video bio to record too (my first!). 100 people were chosen for the inaugural group beginning in June. I got in. I felt excited, daunted and terrified all at the same time.

Now that it’s really happening, there is a lot of planning and scheduling to do:

  • I will find out tomorrow (on Sunday) from my coach Paul Jun who my learning group of 4 is for the first week.
  • On Monday at 11am (6am EST) I get a prompt with the first 3 projects for week 1.
  • On Tuesday and Thursday I have online study meetings with my learning team from 6pm – 9pm. Sunday we are booked for the all day.
  • We need to submit each project by midnight on Tuesday, Thursday and Sunday. These are all online and public.
  • We review other people’s projects and give feedback by 6pm on Mondays, Wednesdays and Fridays.
  • Saturday appears to be the only day off.
  • That repeats again next week and the week after … Until the 13th assignment is handed in on 15th July.

Last week I got a box in the post at work, filled with books. I also received a reading list by email with over 70 books/blogs/articles on it … I am in heaven!

FullSizeRender

These are the commitments we have all signed up to:

  • I will do the hard part first.
  • I will embrace emotional labor.
  • I will think of myself as the type of person who can and does.
  • And I will act that way.
  • I will have a posture of generosity. Giving without hope of getting.
  • I will care about people and the world around me…
  • And I will act that way.
  • I will dance with fear.
  • I promise I will continue to keep making change (‘ruckus’).
  • And then I’ll teach someone else to do so, too.

This is a course of the future, for the future. We are using a whole bunch of online tools, many of which I have never used before – Disqus, Zoom, Slack, Feedly, Digg, etc. Other than what I’ve described above we have no idea what to expect, what the assignments are, how exactly we will work together, how exactly we will do them …

This is not for everyone. These first 100 appear to be a diverse and interesting group of people. As it gets closer many people on the course are feeling anxious, frustrated and stressed at the sheer uncertainty. I also feel like that at some level though the experience has made me realise that I am ok with uncertainty, I can handle change and I quite like being thrown in the deep end. This process is about feeling your fears, acknowledging them and facing them. It’s early days though, I’ll keep you posted on our adventures.

Here we go: 4 weeks, 5 coaches, 13 projects, 100 people, 175 concepts.

All our work is public and will be available for review and comment here – https://altmba.com/blog/

My work will be shared here – https://altmba.com/student/miteshsheth/

Wish me luck! See you in a month.

The Inaugural Class of AltMBA 2015 runs till 15th July.

What will you devote yourself to this year?

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As we enter 2014, and the Earth moves around the Sun one more time, I have found it invaluable to reflect on the past 12 months in order to learn lessons and move forward in the coming year.  The New Year is as good a time as any to ask ourselves: What shall we devote ourselves to? What will be the focus of our time, enthusiasm and energy this year?

In my first blog of 2013 I wrote about looking for inspiration from my Heroes, in their calling, their choices, their determination, their attitude toward obstacles and their incredible achievements (link). As this New Year begins I have to ask myself – Was I brave? Was I bold? Did I face my fears? Did I have faith in myself? Did I embrace adversity? Did I find my calling? More on this later.

My call to action

12 months ago, I had my own ‘call to action’. I left paid employment and entered the uncertain world of self-employment in the hope of spending more time with my family. I was clear that I wanted to spend more time in the next 5 years with my wife and children than I had managed in the previous 5 years. It is so easy to take family for granted, even though we know that they are our greatest source of happiness in life; family doesn’t offer the immediate rewards, recognition and feedback that our careers do.

Clayton Christensen explains it well – “The priorities in our life are determined not by our words but through the hundreds of everyday decisions about how we spend our time, energy and money. With each of these decisions we make a statement about what really matters to us.”

As I entered 2013 I knew the most important job that I needed to do right now was to be a better husband and father. I have felt this many times before and even made countless resolutions in the past to re-address this balance, but 2013 was the first time I was actually going to do something about it. This felt like a moment that might define who I am, that might give me an opportunity to use my talents and to fulfill my purpose on Earth.

However, I hadn’t figured out how I would support this new lifestyle, what kind of work I would do to sustain it and how I could earn enough to cover our expenses. In this vacuum I found myself transported back to the year 2000 when I was trying to decide between earning a living by pursuing my passions and doing something I was good at or a career that were in demand. All sorts of ideas, long forgotten dreams and possibilities filled my head – I could finally become a schoolteacher, author, film director, innovation guru, entrepreneur, etc.

I read a book about “How to find fulfilling work” that just made my predicament worse. I was torn. On the one hand I wanted to be like Leonardo da Vinci – a wide achiever – and pursue many interests all at once. On the other hand I knew I have a tendency to spread myself too thinly and then struggle to do anything well. After much mental wrestling it dawned on me that my biggest successes and achievements in life have come when I have immersed myself in one field and focused all my efforts in one direction, blocking everything else out.

Self-employment and self-discovery

It took so much effort to not get distracted and I had to keep reminding myself of the work-life balance I was trying to achieve. I decided to develop a one man consulting business where I could choose to take on interesting projects during term-time to ensure I was free for school holidays.

I attended a one-day Penna course on ‘Setting up your own consulting business’, I set up a limited company within an hour – Mitesh Sheth Consulting Ltd was born – it all seemed surprisingly easy. Getting clients, however, especially ones that would pay proved to be significantly harder. It took me 3 months to get a handful of clients, from different industries, offering me a broad mix of projects. It took a while though to figure out that I was better off earning my income through the industry I know best – pensions & investments.

Throughout my life I have always thought that there is nothing better than your own boss, but this year I have realised that self-employment is not for everyone (the lack of cashflow visibility at least in the initial period is difficult) and also working on my own was not for me (I’m an extrovert and it felt pretty lonely).

2013 has been a  year of self-discovery for me:

  • I found out that, whilst I loved being at home with my family in the mornings and evenings and during the school holidays, I didn’t like sitting around at home for long periods of time.
  • I realised that I am very ambitious, I love challenges and get tremendous self worth from achieving things.
  • I am also naturally inquisitive and love learning (I’ve read over a dozen non-fiction books this year – link).
  • I like people, especially being surrounded by smart people that challenge me. I am also a rule breaker and disruptor and needed to find a way to channel this constructively.

Finding my ‘Tribe’

The concept of ‘Tribes’ was popularized by Seth Godin in his bestselling book of the same name. He explained the concept as follows:

“Everyone has an opportunity to start a movement – to bring together a tribe of like-minded people and do amazing things. There are tribes everywhere, all of them hungry for connection, meaning and change. And yet, too many people ignore the opportunity to lead, because they are “sheepwalking” their way through their lives and work, too afraid to question whether their compliance is doing them, their family, their company and the world any good.”

Enter Redingtonhttp://www.redington.co.uk – an award winning disruptive pensions and investment consultancy co-founded by Dawid Konotey-Ahulu and Robert Gardner 7 years ago to ‘solve the pensions crisis’. I realised that this could be my working home as soon as I heard Rob’s 100 year vision to help people around the world feel confident about their financial future (link). My initial engagement with Redington started with RedStart, a groundbreaking programme that offers free financial education to young people at school. I then got involved with the Manager Research Team and have recently accepted a permanent role as Director of Strategy.

The more time I have spent with Rob, Dawid, Pete and the rest of the Redington team the more it has become clear that I have found my ‘Tribe’ – this is a group of talented and smart people who are ambitious and altruistic in equal measure, blending rigorous analytical discipline with creative flair.  Having spent Christmas at home with my family I am really looking forward to going back to being part of this Superteam (in the words of Khoi-Tu).

Final reflections

Back to those difficult questions I was asking myself earlier. In 2013 was I brave? Was I bold? Did I face my fears? Did I have faith in myself? Did I embrace adversity? Did I find my calling? I am pleased that for the first time in many years the answer is a yes to most of these questions, with the exception of the last one.

I have not found my calling yet, but I found my tribe, which has to be the first step.  For 2014, I want to make a commitment (not just a resolution) to continuing on this path of self-discovery, seeking to understand  where to focus my energy better and what to devote myself to. 

2013 was an amazing year for me on so many levels, even though it did not feel like it along the way. I will always remember it as my year of self-discovery. I want to share the key to unlocking this internal exploration: daily introspection and journaling.

My resolutions for 2014

I am 14 years from turning 50, I don’t have the luxury of time to waste by just re-living the same year over and over again. If 2013 was the year of ‘self-discovery’, 2014 will be the year of ‘devotion’ for me.

Over the past couple of months my wife and I have started a 5am routine: We wake up and do Surya Namaskar (Yoga & Pranayama) for 20 minutes, then we both write a Journal (reflecting on the previous day and our goals) for 20 minutes and finally we read something (thoughtful or inspiring) for 20 minutes. This routine has been invaluable in helping me deal with this year’s uncertainty, embrace adversity, adapt, understand myself and retain focus on my priorities.

  1. This 5am routine continues to feature front-and-center of my plans for 2014 (‘Daily routines of rock stars’ link).
  2. In 2014 I am looking forward to helping Redington grow with new clients, in new channels and new markets.
  3. After reading Outliers by Malcolm Gladwell and learning about the massive differences that are forged between children over the school holidays, I have committed to spending school holidays at home with my children.
  4. I will use my free days but to write more this year. I started writing a blog for the first time in 2013 and I have really enjoyed it. I have written 19 blog posts and had 7,865 views. I really love writing. I am going to do more of this in 2014.

I’d like to thank all of you for your advice, guidance, support and encouragement throughout 2013. I wish you and your families a very Happy New Year.

For 2014 I offer you the gift of introspection, and journaling in particular, and leave you with this final question:

What will you devote yourself (your time, your energy and enthusiasm) to this year?

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 emai[email protected]sheth.com).

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,

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

Take a blank sheet of paper to fund management

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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.

Performance

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.