After presenting at a conference last month, a sceptical audience member asked me: “When you retire, would you invest your money with a fund manager?” He expected me to say “no”, but I surprised him by saying: “Sure, I would happily allocate a portion of my funds to a great fund manager.”
Naturally this led to a follow up question: How do you decide who is a ‘great fund manager’?
Wholesale and retail investors alike have to grapple with this thorny question at some stage, so – as an investment professional who has spent almost two decades managing other people’s money – I thought it might be useful to provide a fund manager’s perspective.
In my experience, virtually all fund managers today have driven, ethical and smart people working for them. That’s almost a given – and in the unlikely event that your fund manager lacks any one of these qualities, you should replace them instantly.
The tricky bit however is how to choose between fund managers, when they all have driven, ethical and smart people working for them.
For me, there are three big questions that all investors should ask about a fund manager before they commit their hard earned cash into their custody:
1. Does the fund manager cultivate a culture of ego or humility, team work or silos?
2. Has the fund manager developed a rigorous approach to risk management? and
3. Does the fund manager, without prompting, propose a business model that closely aligns their own interests with those of their investors?
Note, I say that these questions should be asked about the fund manager and not just asked to the fund manager. In other words, you need to observe, research and reach your own conclusions about the manager and not just accept the manager’s responses at face value.
1. Corporate Culture and Team Ethic
I heard a presenter say recently that corporate culture was a myth and that leaders who talked about managing a team culture were hallucinating. I couldn’t disagree more. Not only is corporate culture very real, it’s a highly reliable predictor of long term organisational performance.
One of my favourite business authors, Patrick Lencioni, puts it this way:
“If you could get all the people in an organisation rowing in the same direction, you can dominate any industry, in any market, against any competition, at any time”
Patrick’s book, The Five Dysfunctions Of A Team, is in fact mandatory reading at EG for anyone looking to join our firm. I call it our “cultural bible” and, if you haven’t yet read it, it’s well worth the effort.
Corporate culture is the repository of an organisation’s unspoken rules: all the way from sharing information freely with other team members, to feeling safe to own up to mistakes, to feeling empowered to debate the CEO on a major investment decision. It matters immensely because:
– without a culture that actively fosters goodwill among team members, rivalries and factions ultimately lead to
silos that inhibit the free flow of information – and information is the lifeblood of good decision making;
– without a culture that cultivates trust, team members are afraid to challenge and debate each other’s views when big investment decisions are being made – and debate is the heartbeat of good decision making;
– without a culture that promotes accountability and growth at the workplace, staff turnover will be high and this results in regular loss of corporate memory (experience) – and corporate memory is the oxygen of good decision making.
A team of smart, driven people who feel comfortable to debate each other will, over time, make better decisions than any single team member on their own. And yet too often, the biggest egos in the room hog the stage and squash debate.
CEOs, whether by choice or not, are the single most important influence on corporate culture. One of the key responsibilities of any corporate leader is to serve as a guardian of team culture – and, to borrow Churchill’s immortal words: the price of great corporate culture is eternal vigilance.
In my view, you cannot overstate the importance of corporate culture to long term organisational performance and I will have a lot more to say about this in my blogs in the weeks and months ahead.