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Each year, I try to meet with as many clients as possible, to stay close to the issues and investment problems they are facing. Our conversations often pivot to observations on leadership, culture, talent, and ways to create strategic partnerships with each other. In my experience, these partnerships are most effective when they are characterized by a long time horizon for evaluation, multiple touch points up and down the organization, a very high level of trust, considerable overlap in cultural values, and, importantly, a two-way street for learning — meaning that we find we are learning from one another.
I could fill a book with all of the lessons I have learned (or relearned) from clients, but here are a few recent ones that I thought I’d share as we head into the new year — in the spirit of growth and development, which we all seek, particularly in these complex and uncertain times.
The head of a large endowment described having a “manager-centric asset allocation framework” rather than a traditional risk/return asset allocation framework. The framework emphasized the importance of identifying genuine investment skill, philosophy, and process — or to put it another way, identifying a manager’s distinctive edge. This is a topic that’s often raised by consultants and other industry watchers, who note that true alpha generators sometimes do themselves a disservice by not explicitly differentiating their approaches. To sharpen that focus with our own investors, we have developed a series of Philosophy & Process Panels, to put our investors through their paces, so to speak, and a Portfolio Manager Development Program, which is designed to help bring younger investors along as they make the journey from analyst to risk-taker.
Defining one’s edge as an investor takes a lot of self-reflection, is very personal, and goes to the core of who one is. In this day and age of big data, it also requires data to back up the claims. And yet there is still a critical element of art, intuition, and judgment that complements the science. Or, as another client put it, “Formulas are easy; good judgment and intuition are hard.”
The head of a large government pension fund said that “the key fiduciary duty is long-term sustainability.” This is a perspective that is at the core of how we seek to run our firm, from our private ownership model (we can focus on long-term results) to our approach to our greatest asset, our people (we recognize that lives aren’t linear and focus on the long arc of a career). Increasingly, we believe asset owners are coming to recognize the importance of long-termism to their investments. As one of our portfolio managers said recently, “Given that so much capital and so many resources are focused on very short-term data points, the opportunity for stronger long-term alpha generation is growing for those who can tolerate short-term volatility.”
We’re witnessing a great deal of disruption in the financial world today, and it requires thinking differently, being flexible, and questioning the status quo. This brings to mind something the CEO of an insurance company said recently: “Strong leaders give their successors license to challenge what they have put in place.” In other words, the “old ways” of doing things may not be the best ways. On this point, another client advised, “Find the truth tellers who will debate you like a peer. Everyone needs to be challenged.”
“Cognitive diversity” was the expression used by the former head of a consulting company whose effort to broaden the talent pool over the years took her to many venues, organizations, fundraisers, and other less traditional sources of talent and new perspectives. Another client offered this advice: “It’s important to look for people with different perspectives, not people who do what I do or say what I say.”
Cognitive diversity is a long-held value of our firm, but I’ll admit that it’s one that took me years to fully appreciate. I remember our former CEO, Duncan McFarland, urging me in my early years at the firm to “seek the wide audience.” When I followed this advice, I would hear other perspectives but I wouldn’t really listen. I would hear just enough to argue my side rather than being open to the possibility that the other person had a good point that could help me refine and test my thinking. In time though, I saw the wisdom of Duncan’s expression. We seek diverse perspectives so that we can get to better outcomes for our clients. For me personally, the key lessons were to talk less and listen more, and to maintain a spirit of genuine curiosity and open-mindedness.
The CEO of a sovereign wealth fund was discussing the challenges of rapid growth in his team, and shared some wisdom: “As we grew, we stopped talking about the ‘sense of purpose’ and then entitlement crept in (i.e., people started asking ‘what are you doing for me?’ and they lost sight of the mission). It was a great reminder to us to celebrate the mission and constantly repeat it to each and every employee.” In a related vein, another client emphasized the criticality of staying externally facing, helping clients solve problems, and resisting the inexorable pull inward as an organization grows.
At Wellington, we strive to keep our sights set firmly on our mission and purpose — to recognize that behind each institutional mandate we have the privilege of managing, there are real people with real hopes and dreams. If we can execute well on our jobs, then our clients can build hospitals, provide university scholarships, help pensioners retire, support countries’ social service programs, fund medical research, and do so much more.
The CIO of a large endowment had this to say about trust: “The thing we really value is honesty and integrity. That sort of trust can’t be built in a minute, but it can be lost in a minute.” Trust takes time and commitment, but the end result is evident in some of our most enduring client relationships. We believe trust matters internally too. It is essential for our culture of collaboration, collegiality, and open dialogue and debate.
Reflecting on his management philosophy, the long-time head of fixed income for one of our public fund clients offered this: “You’ve got to care about people. It can never be about you. It’s that simple.” We strive to capture this spirit of generosity in our own firm’s culture, which places great value in collegiality and collaboration — all in the belief that supporting one another, working together, and avoiding “silos” in our business will serve our clients well. In the end, investing is a team sport, and the interests of the team have to supersede the interests of the individual, no matter how talented the individual.
This is how the chairman emeritus of one fund company defined leadership. I translate this to mean getting the balance right between humility and courage (to be clear, I’m talking here about leadership as a common skill we all work at, regardless of title). At Wellington, humility is one of the core values of our culture. There are constant reminders that we work in a humbling industry. Even a truly great investor will be wrong a lot — say, 40% of the time. That takes some getting used to and an ability to keep both the successes and the failures in perspective (as well as the resilience to bounce back from failure). I think our firm’s open, collaborative environment helps. Every day, we get to hear different investment views, test our own ideas, and learn from others’ ups and downs. These experiences, I believe, help keep us grounded. With respect to the second part of the expression (“big backbone”), that to me is about finding the courage to do what’s right even when it’s difficult, not cutting corners, admitting when one is wrong, and recognizing one’s own blind spots.
I also draw a connection between this definition of leadership and how we think about the structure of our firm: having the humility to recognize that there are many truly respected competitors with different business, investment, and ownership models, yet also having the courage to “go our own way” as an independent, privately held partnership.
A senior consultant, who has written extensively on institutional cultures, made the point that “strong cultures have a tendency to regress to the mean without a lot of care and feeding.” It was a point that resonated deeply with me. Everyone at Wellington has heard me say (many times!) that it is up to each of us to perpetuate our special (albeit imperfect) culture, which I believe helps us to attract and retain talent. It’s also up to every single one of us to help evolve the culture when it is not living up to our aspirations. In that spirit, we ask questions and challenge ourselves: What am I doing to act on constructive feedback? Where am I being complacent? How do I ensure the firm continues to feel small and our people feel connected and have a sense of community? What am I doing to mentor and bring along the next generation? What am I doing to break down silos? What am I doing to be supportive when a colleague is struggling? How can I be a stress absorber, not a stress multiplier?
Looking back on his first year in his role, the CEO of a UK consultant offered his “10 biggest mistakes” rather than his achievements. Included on his list was a lesson we could all stand to remember: “Above all, I didn’t make enough time for my wife, children, my health, my wider family, and friends. I made some sacrifices this year that are not sustainable.”
I suppose my point in all this is that learning never ceases. Nor does our search for new ways to achieve investment excellence and help clients solve problems. Over time, we’ve sought to create an investment platform that embodies our belief in proprietary research, global collaboration, and a community of boutiques investment model. In 2018, we are launching a number of efforts to reinforce these pillars and further support our investors in their pursuit of client goals. For example, we are:
We are excited about these initiatives and their long-term impact on our ability to be a partner in the pursuit of your mission.
In closing, I would like to thank you for giving us the privilege of managing your assets. We are committed to maintaining your confidence and trust.
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