Top portfolio managers often make the headlines — whether their strategies perform well, or as we’ve seen recently, when they leave their firms. Their departures can be disruptive — whether it’s perception or reality. Fostering «star managers» is a cultural decision — but it’s not one that often works over the long term. The best investment cultures are built on humility, collaboration and mutual respect. There are no stars — only teams, equality and a healthy exchange of ideas.
A strong culture matters a lot — particularly for an investment firm, where people and judgment are your greatest assets. The way teams interact and collaborate to make investment decisions not only impacts how well a strategy performs, but also how the firm does as a whole. Those teams have to function well and create value together if they want to achieve differentiated performance.
Great minds don’t think alike
A collaborative culture doesn’t mean everyone has to think the same way. In fact, diverse views can actually lead to better decisions because they allow you to benefit from multiple perspectives and different analytics to get to a better outcome. But the process of sharing different views must be respectful, not combative. Instead of challenging each other as individuals, it’s important to challenge each other’s ideas. Encouraging team members to offer different views helps a team sift through increasingly large amounts of industry information, filter out the noise and focus on good research. By debating the information together rather than acting on it alone, you can avoid individual biases — which can cause trouble. Ultimately what you get is an environment of constructive challenge aimed at providing better results for clients.
To share different views, however, you need common cultural values. It’s tough to debate investment ideas successfully unless you have a common understanding of the end goal. For instance, if one side believes in a long-term perspective while the other side focuses on short-term market sentiment, that creates a headwind to achieving better outcomes. In fact, research on team building shows that common cultural values form the bedrock for cognitive diversity that leads to differentiated performance.
Culture supports investment beliefs
An investment firm’s beliefs and philosophies should be ingrained in its culture. For example, if you believe that a longer-term investment horizon results in greater opportunity for differentiated performance, your culture must support it. You must reward longer-term performance, tolerate short-term underperformance and follow both an investment process and team orientation that supports these objectives.
Increasing globalization and complexity calls for collaboration and teamwork, not just around the globe but also across capital structures. Consider an equity analyst who can look at company valuations, macroeconomic factors and competitors but typically wouldn’t have a lot of debt experience. Now combine that equity analyst’s view with a fixed-income perspective that looks at more complex credit issues central to the company’s capital structure, such as its financing facilities and debt covenants. Bringing these views across capital structures together provides a much more powerful perspective on a company’s intrinsic value.
Culture also creates a sense of shared responsibility, which is important to good risk management. In a risk-aware culture, shared values and consistent behavior can lead to stronger risk management — yet another case where strong culture benefits the client.
Don’t set it and forget it
It’s not enough to hire talented people. They also need the capacity to work in teams, share information and fit well into the firm’s culture. Infusing cultural values in the management of the firm — each and every day — is just as important as hiring the right people. If you want a collaborative culture to work, you need your employees to live and breathe it so it’s part of the fabric of the firm. Keeping employees connected to the firm’s culture helps them stay invested in the firm. It also reduces staff turnover — which is critical to limiting disruption to portfolio management and reducing hiring and training costs for the firm.
Culture isn’t a skill or a talent. Competitors can’t recreate culture the way they can mimic an investment or business strategy. Firms own their culture, and it’s up to the entire organization to keep it alive.
Article by Michael Roberge, President and Chief Investment Officer, MFS