“Would you hire yourself, and when would you fire yourself?” Chris Condon asked the gathering of investment chiefs in Manly in a presentation on running a successful internal investment team. “We’ve all hired external managers. In my view, one of the most important aspects of manager research is ensuring the organisational structure and settings work for the investment team,” Condon said. “If you’ve got a strong organisation, your investment professionals can focus on portfolios.” To make sure that investment staff focus wholly on portfolios, they must be accountable for the consequences of their strategies. Condon said they must be “empowered” to make investment calls, including the “sizing” of opportunities, and have ownership of the ups and downs resulting from their decisions. Such ownership of outcomes must exist within a “win-win” culture – or one of mutual payoff – in which staff members also have an interest in the success of colleagues.

“You might have four or five portfolio managers, each with different roles. What you want to achieve is a situation where these individuals, who are accountable for their own areas, are also stakeholders in the success of their colleagues.” This can make an organisation more than the sum of its parts, Condon said. But in encouraging such collectivism, executives must be aware of staff members’ varying political skills. “Some people are better at managing up than others,” he says, inferring that investment skill and accountability should be rewarded. Trustee boards should challenge their decisions. He suggested a review panel of investment practitioners from within or outside the organisation – playing devil’s advocate – should be consulted to “challenge the portfolio managers but never make decisions”. Having all care and no responsibility, the panel would not be required to form a consensus view or make recommendations.

He warned that teams’ interactions with traditional asset consultants could become “confused” if the service providers were unsure of whom they should address: the trustee or investment staff. Graeme Miller, the domestic head of Towers Watson’s investment consulting business, said the firm’s relationships with funds that ran internal teams had, in the main, “deepened”, although there had been cases in which “the reverse has happened”. Miller said funds still held a “peculiar” attitude to costs. As they ladled out money to external managers, they were hesitant to spend money on improving internal resources. Chasing alpha in Aussie equities ‘worth the effort’ But, most CIOs who believe in active management expect to find outperformers, and will pay to access their services. And while Australian equities managers tend to have a better time beating their home market than their US and UK counterparts, picking the winners in advance remains a difficult task. “Experience says there are managers in Australia that consistently outperform the market,” according to James Wright, the investments chief and head of Australian equities for ING Investment Management.

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