Predictive power found in manager culture assessments

Quantitative measurements of the culture of funds management firms can provide indications of the future success of those companies and also their ability to retain personnel, a study by researcher InvestmentQ finds.

The preliminary findings of a three-year study in which InvestmentQ, a research project managed by global consultant FS Associates and advised by Watson Wyatt Worldwide and the Brandes Institute, used a web-based tool called Q-Sort to quantitatively analyse the culture of 24 American funds management companies.

Funds managers, clients and consultants all performed Q-Sort analyses on the companies in 2004, and the results were compared with the growth in funds under management and staff turnover in the ensuing three years to mid-2007.

Barry Gilman, head of the Brandes Institute think-tank, said the aim of the study was to learn “to what extent can Q-Sort be a predictor of future investment success?”.

A critical part of interpreting the results of a Q-Sort is measuring the differences among the perceptions that managers, clients and consultants have of the culture of a firm.

Sponsored Content

Where surveyed managers held similar views of their business culture as consultants, they tended to be more successful in the three years after the Q-Sorts were performed.

But where a manager’s perception of its business culture diverged from those formed by consultants, its growth in funds under management tended to slow in the following years.This outcome applied to one-third of managers surveyed, Gilman said.

“When managers were more favourable on themselves, clients and consultants were less favourable.”

The Q-Sorts also indicated upcoming staff turnover in some firms.

“Some metrics were quite highly associated with a subsequent lack of growth of assets under management and high turnover.”

Although the sample size was small, and the results tested only in a three-year timeframe, Gilman says the findings warrant further use of the Q-Sort tool.

“All of this is indicative but still powerful enough in results to say this is worth following up. As we get more managers along and look at results over greater periods of time we can get away from indicative and move towards statistical proof.”

Jeff Nipp, director of investment manager research at Watson Wyatt Worldwide, said the service helped the consultancy to “identify areas of potential concern” and conduct “more meaningful” conversations with managers about their business culture.

The tool, which is free to use, assesses whether the culture of a firm is predominantly optimistic or pessimistic, whether there is a sense of control or chaos, and whether there is tolerance of dissent, among other measurements of organisational culture.

It was first developed by social scientist William Stephenson in the 1940s, but professors Randall Peterson (who also advises InvestmentQ) and Philip Tetlock of the London Business School developed the Group Dynamics Q-Sort, the type applied by InvestmentQ.

To date, the Q-Sort database contains analyses of more than 100 managers, mostly from North America and Europe.

Leave a Comment

Sort content by

Ahoy! Opportunities in dock for shipping investors

Investing in ‘distressed shipping’ is a variation of the current capital scarcity theme, Mercer says. (click on the photo for more…)mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Systematic rebalancing is not necessarily best way to go

The value of systematic rebalancing of portfolios to bring them back closer to strategic allocations has been questioned in new research by Morgan Stanley.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

If macro is back, who you gonna call?

Is stock picking dead? Fiduciary investors should be starting to wonder, given the cross-sectional volatility of markets over the past three years. But this seems counter-intuitive. Managers have told us we are in a “stock-picker’s paradise”.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

CIC expands global reach

The Chinese Investment Corporation will hire a throng of investment professionals to join its nearly 200-member global investment team, following the second meeting of its international advisory council in Shanghai this month. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

What now?

This RogersCasey position paper examines the inflation-deflation debate, and the strategic role of real assets in portfolios, concluding there will be higher volatility around long-term average inflation, and that clients should diversify away from US treasuries to protect against sovereign risk. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Canadian penchant for fewer, bigger funds hits Australia

The similarities between Canada and Australia are often remarked upon, and they could be about to extend to pension management if an ambitious plan for a ‘mega-merger’ among Australian state-based funds comes to fruition.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous