I received a great piece of advice back in the 1990s when I first started out in London as a young fund manager at a large European asset manager:
“Clare, great fund managers are made, not born. Investment decision making is something you will always be able to improve upon, and the day you stop being interested in that improvement is the day you should find another occupation.”
A lot has changed since that day, but that advice has never been more relevant.
The active management industry today is buffeted by the rise of passive strategies and insistent calls for higher transparency and lower fees. Not a day goes by without some new article predicting the demise of the human-led fundamental investment managers.
Despite these headwinds, I believe that fundamental investors will not only survive in the future but thrive.
Research has shown that human brains are still far better than computers when it comes to making the finely balanced judgment calls required in complex and ever-changing financial markets.
This advantage is increasingly supported by the asset management industry’s growing adoption of data-driven feedback loops, similar to those employed in professional sport and other high-performance activities.
Many of today’s managers realize that there’s no longer a competitive advantage to being smarter than everyone else or even having access to better information. All that has been commoditized. What’s left is “behavioral alpha” — the excess returns that can be generated by “knowing thyself” and being more focused on self-improvement than the next person.
Today’s most thoughtful investors have a wealth of experience to share with the next generation of fund managers. Each offers a different perspective, but they all share a focus on the importance of learning and reflection.
What makes a good fund manager? A willingness to learn, from your own success and failures, but also from the wisdom of those who came before you.
Here are some valuable tips from experienced portfolio managers:
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Ben Wallace, fund manager, Janus Henderson:
- “Always invest in your own fund. It shows investors you are aligned with them and focuses the mind.”
- “Bad news is almost never ‘in the price.’”
- “Always be open to hearing views that are the opposite of yours.”
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Pascal Kummert, portfolio manager and chief investment officer, Calvion Capital Management:
- “While raising capital, it helps immensely to run the strategy with real money or, if that is not possible due to size and instrument size constraints, then as a time-stamped paper portfolio. Then send short weekly letters/portfolio metric summaries to prospective investors with a short comment on views and portfolio changes. Even better, include your auditor on the mailing list. This goes a long way to getting investors comfortable with your strategy, shows your thinking in real time, and keeps you in touch with markets while you’re building the business.”
- “Risk management, risk management, risk management. Come up with a well-structured framework that fits your trading style/strategy/psychology. What you lack in experience, make up for with additional structure, process and transparency towards your prospective investors. Show them how you hold yourself accountable to your risk framework.”
- “Document as much as possible of your investment decision-making process. This will allow you to make improving tweaks to your process and allow for learning and adaptability to different market regimes.”
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Gunther Kramert, senior portfolio manager, Union Investment:
- “Be skeptical, be critical, and make up your own mind. As a portfolio manager, a lot of people tell you a lot of things. But they may have motives that are not necessarily to your benefit (even when they seem convincing, or are convinced themselves), and they don’t necessarily know the truth any better than you do.”
- “Do not get overconfident. Stay disciplined and be prepared to reflect on your personal shortcomings and deficiencies. If you’re not prepared to acknowledge these realities, and seek to improve on them, you have a competitive disadvantage.”
- “Integrity is paramount — don’t ever compromise your integrity for a short-term benefit. Success in fund management is a marathon, not a sprint.”
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Mick Dillon, CFA, portfolio manager, Brown Advisory:
- “Getting a coach to help you improve is as imperative in fund management as it is in elite sport.”
These seasoned portfolio managers offer valuable insights into what it takes to succeed in the industry. They emphasize the importance of continuous learning, self-improvement, risk management, and maintaining integrity. They also highlight the need to be open-minded, skeptical, and critical in order to make sound investment decisions.
Becoming a successful portfolio manager requires dedication, discipline, and the ability to adapt to a constantly changing market. It’s not just about being smart or having access to information; it’s about continuous learning, self-awareness, and a strong investment process.
If you’re aspiring to be a portfolio manager, take these tips to heart and always strive to improve yourself and your investment decisions. Remember, success in fund management is a journey, not a destination.
Note: All opinions expressed in this article are those of the authors and do not necessarily reflect the views of CFA Institute or the author’s employer.
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