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

Big pension funds list their target asset classes for next 3 years

Investment grade bonds, followed by emerging market equities and then diversified global equities, are the asset classes which will best meet the requirements of large pension funds and multi-manager packagers, according to a survey of the fiduciaries of assets totalling more than $5 trillion. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Peter Bernstein: Risk Inverse

Peter Bernstein, an economic consultant and respected investment thinker passed away on Friday June 5 in New York. Widely regarded as an intellectual giant in the investment circles for his ability to translate complex mathematical models into practical applications, he founded the Journal of Portfolio Management in 1974 and wrote a number of respected books

…as consultant assessment initiates changes to internal equity team and technology

CalPERS has reached its capacity to internally manage equities portfolios and would need to make changes to technology and staff resources if the internally-managed equities program is expanded, according to the outcome of the annual consultant review of CalPERS’ internal equity team by Wilshire Associates. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Asset class review inspires opportunistic allocation at CalPERS’

CalPERS is considering adopting an “opportunistic” program seeking to profit from substantially undervalued assets across various asset classes and strategies, and will be limited to 3 per cent of the fund’s total market value. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

The future of risk management: How independent should risk management be?

Barry Schachter, research associate with the EDHEC Risk and Asset Management Research Centre and director, quantitative resources, Moore Capital Management believes the current crisis is a catalyst for change in the conduct of risk management because it has challenged the efficacy of the existing risk management model, but simply imposing regulation is not the change

SWFs struck at financial crisis epicentre: $50b in losses from financials

For their biggest public market investments in the last two years, sovereign wealth funds (SWFs) zeroed-in on the most dogged companies in the worst-performing sector: Western financials. These decisions incurred paper losses of $US56.3 billion, accounting for most of their public market losses for the period. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous