I’ve written previously about the importance of alpha generation by today’s investment managers, and having a strong core combined with continuous innovation should lead to consistent alpha generation, client retention, and growth. But ultimately, long-term success in the investment industry is dependent upon effective leadership.
Leadership is needed in the culture of the organization, which must be one that fosters curiosity, innovation, engagement, and results-oriented collaboration. Only in this way can we promote an environment in which consistent alpha generation can flourish. That means letting people innovate and move out of boxes. It means letting new products develop organically. It means maintaining a cohesive strategy that reflects the strengths of the firm while recognizing both cyclical and secular trends. Investment leadership understands industry trends but is not afraid of them.
Leadership is needed in the culture of the organization, which must be one that fosters curiosity, innovation, engagement, and results-oriented collaboration. That means letting people innovate and move out of boxes.
While there may be headwinds to growth due to evolving demand for strategies, leaders are not afraid of how these headwinds may passively affect the firm. Leaders try to understand the cyclical versus structural nature of these headwinds and capitalize on them. Sometimes these headwinds—these disruptions—stimulate innovation. Investment leaders need to foster this innovation, develop a long-term strategy, and have the ability to execute to that end.
Leadership is also required in terms of technology. Technology includes the tools used in the investment process, but also in communicating with external constituencies via formal written and verbal communications, interactive discussions, and, of course, social media.
Lastly, alpha generation requires leadership in human capital. Investment firms must attract and retain curious, driven, high-quality, team-oriented investment professionals to generate consistent performance. To do that, we must expand the opportunity set. Numerous industry studies have shown that diversity in backgrounds, in life experiences, and in gender and race contribute to better investment decisions. According to a McKinsey & Company study, for instance, the likelihood of good financial performance (as represented by earnings before interest and taxes) improves as gender and ethnic diversity increases. Similarly, a Credit Suisse study found that since 2006, among companies with more than $10 billion in revenue globally, those that had at least one woman on their boards had 3.1% annualized outperformance versus those with no women on their boards. Women are also making more decisions relating to investment portfolios, both institutionally and in the high-net-worth arena.
The imperative for diverse teams must be initiated by an organization’s leadership, but must be implemented organically from the bottom up, with each team internalizing these initiatives and searching for candidates with varied backgrounds. Of course, each team member must fit within the culture, but not everyone within a strong culture looks the same, attended the same schools, or lives in the same place. We all need to do better, and I am confident we will do better. The integrity of our investment process, the continuous search for alpha, and our client outcomes demand it.
GICS Reclassification: Impact on Emerging Market Investors
