Active investing is a contest for clients attention. What will increasingly drive that attention?
Does near term performance grab client attention. Yes, but it’s yesterday’s contest.
As we pause at the end of a bizarre 2020 I thought to share a terrific question I was posed a week ago by a Spanish investor. This Madrilenian asked me:
‘What is the one key takeaway from your array of PM experiences this year that you think I can best learn from and will help me the most as an investor in 2021?’
I bought time…… I promised him an answer prior to the New Year.
The downtime helped me reflect (along with several bottles of a stunning boutique red wine from, of all places, the Atacama Desert in Northern Chile (hence the image….its the driest desert in the world and the most popular with filmmakers for Mars like landscapes - perhaps rivals some of the best Northern Rhone Syrahs - message if you are intrigued:-) )
I called him today and suggested that;
a) He buys the aforementioned wine and
b) Above all in 2021, I think that asset owners are getting more interested in a new contest, less about discussing near term alpha and more about authenticity. In 2020, with virtual working, most PM’s spent much more time happily talking to me about purpose, for example………
What are their strongest skills?
What motivates them about the role most and possibly the most powerful
What are their beliefs about the inefficiency they can reasonably exploit?
I feel there is a real shift toward authenticity in asset management. It’s why focusing on investment philosophy would be my top pick for investors to develop in 2021.
Most investment philosophies I read are generic. A great philosophy needs to be concise, memorable and honest. I believe actively enhancing this in 2021 will differentiate and thus attract client attention.
Allocators of capital increasingly want to understand the human element in any active discretionary manager. Clients want to believe what you believe, but never tell you that.
Just as Socially Responsible Investing focuses on investing in companies whose practices align with an investor’s values as they pertain to the company’s impact on society and the environment. Similarly, I believe there will be an increased focus by asset owners on the fit between a PM’s authentic values as a human being and their beliefs about the game of exploiting inefficiency.
A contest around authenticity.
The PMs who do this well prioritise their core competencies and eliminate the fluff. This applies both to investment process and importantly investment philosophy.
How can professional investors do this?
Like in most areas of research, first look at the data. The data on your personality. How you tend to think, feel and behave.There are ways to capture this data. Psychometric tests can measure a number of attributes including, intelligence, critical reasoning, motivation and personality profile.Some personality assessments yield more reliable data and valid data than others and some more useful specifically for investors.
Once you think you have good data work with an investment savvy mentor, HR colleague, or coach on what really resonates in the data. What is authentic to you? Then start creating a message that links who you are, with what you believe about markets. Then refine, rehearse and repeat.
It is more and more important that capital has purpose and this capital has impact.
I believe investors of this capital in 2021 need to better align their own purpose with their day to day investment role.