An industry leader candidly examines the role of investment leadership in portfolio management
Investment Leadership& Portfolio Management provides a top down analysis of successful strategies, structures, and actions that create an environment that leads to strong macro investment performance and rewarding investor outcomes. By examining how to manage and lead an investment firm through successful investment decision-making processes and actions, this book reveals what it will take to succeed in a radically changed investment landscape. From firm governance and firm structure-for single capability, multi-capability, and investment and product firms-to culture, strategy, vision, and execution, authors Brian Singer, Barry Mandinach, and Greg Fedorinchik touch upon key topics including the differences between leading and managing; investment philosophy, process, and portfolio construction; communication and transparency; and ethics and integrity.
Leadership issues in investment firms are a serious concern, and this book addresses those concernsDetails the strong correlation between excellence in investment leadership and excellence in portfolio managementWritten by a group of experienced professionals in the field, including the Chairman of the CFA Institute Board of Governors
Understanding how to operate in today's dynamic investment environment is critical.Investment Leadership& Portfolio Management contains the insights and information needed to make significant strides in this dynamic arena.
Preface xi
Acknowledgments xvii
Chapter 1 Characteristics of Successful Asset Management Firms 1
You Can Take the Boy Out of the Culture, but You Cant Take the Culture Out of the Boy 3
Size Matters, but Not in the Way Most People Believe 7
Governance: The Guardian of an Investment-Driven Firm 12
Fostering Collaborative Freedom: Everybody is a Peer 19
Integrity: An Unquestionable Characteristic of Success 23
Conclusion 25
Chapter 2 Building a Cathedral: A Framework for Turning the Mission into Collective Action 27
A Framework for Effective Leadership and Management 28
Establishing and Living Organizational Values 29
Creating Mission and/or Investment Philosophy Statements 31
Strategic Goals and Key Performance Indicators 33
Conclusion 37
Chapter 3 Building a Meritocracy: Understanding, Evaluating, and Rewarding Employee Contributions 39
Performance: A Deeper Dive 39
Horizon: The Fallacy of the Three-Year Track Record 40
Performance Analysis: Practically Speaking 45
Top-down and Bottom-up Approach to Determining Performance 48
Designing Your Rating System to Help Make the Difficult Decisions 51
What Does the Performance Score Really Mean? 53
Criticality: A Deeper Dive 53
Merit Zones: Putting It All Together 57
Communication of Performance and Criticality 59
Values and Compensation 64
Conclusion 67
Chapter 4 Investment Philosophy and Process: A Lofty Cathedral Needs a Deep Foundation 69
The Importance of Investment Philosophy and Process in Investment Organizations 69
Investment Philosophy: Core Beliefs 70
Investment Process: Control and Anarchy 73
Avoiding the Pitfalls of Behavioral Biases 78
Conclusion 83
Chapter 5 Investment Process in an Evolving World 85
Implementation Overview: The How of the Investment Process 86
Fundamental Valuation 88
Market Behavior and How It Challenges the Fundamental Investor 90
Team Behavior: Lessons for the CIO from Jelly Beans and Freud 118
Portfolio Design 127
Conclusion 129
Chapter 6 Communication for Superior Client Outcomes 131
The Problem: Human Nature 133
A Classic Tale 134
Case 1: Individual Investors, the Impact of Performance Chasing 137
Case 2: Are Institutional Investors the Smart Money? 137
The Reality of Investing in Equities 139
The Mathematics of Recovery 142
Dilemma: Investment Firm or Distribution Shop? 143
The Importance of Culture 145
Sales and Marketing in an Investment Firm 146
Conclusion 149
Appendix: Client Communication in Extreme Market Conditions 149
Chapter 7 Where are the Clients Yachts?: Reasonable Fee Structures 159
The Gamma Trade 161
Anatomy of a Blowup 167
Catch 22 168
Faults of Existing Fee Structures 170
Our Recommendation: High Integrity Fee Structures 178
Conclusion 186
Chapter 8 Final Thoughts 187
Characteristics of Great Asset Management Firms 188
It Starts with a Shared Mission and Values 188
True Meritocracy 189
Avoiding the Pitfalls 190
For Successful Client Outcomes: Communicate, Communicate, Communicate 192
Its All about Incentives 193
Integrity 193
Notes 195
Bibliography 201
About the Authors 205
Index 207
