Leaders of high-performing investment teams hear no shortage of new ideas. The challenge is ensuring the right processes are in place to filter them.
Colonial First State head of investments Scott Tully said new investment ideas flow in thick and fast from internal staff members, external managers, from working closely with asset consultants, or from listening to peers at conferences.
Tully said it is important to figure out how to hold accountable not just the heads of portfolios or particular asset classes but to motivate the whole team to bring ideas forward. Getting the right remuneration structures in place was a big part of that, he said.
“We don’t need to encourage debate among the team, it comes naturally, but what you do have to do is structure it,” he said.
Tully said the challenge is to stay focused on developing ideas that would serve the appropriate portfolio construction goals.
“If we want to manage our portfolios within the realms of what we have been asked to do, we have to be able to take all the ideas that come through from the team, through whatever process, and filter them down to those that are appropriate for the portfolio and implementable,” he said.
“And that’s the challenge.”
The essence of it is having lost of bright people who are paid to be analytical, contradictory, and bring all of those attributes together to distil an idea out, he said.
“That can be a long process and there might be a few casualties along the way in terms of good ideas that don’t make the cut for whatever reason.”
Tully made his comments while participating on a panel about “idea generation” at the Investment Magazine Fiduciary Investors Symposium, held in the Blue Mountains, NSW, May 15-17, 2017.
Disagreements an opportunity
OFI Global Asset Management portfolio manager Alessio de Longis said disagreement is an important part of the idea filtering process.
“Within our team, within each division, we cherish those divisions and we try to find clever ways to reconcile those differences in the implementation,” de Longis said. “Often when there is a disagreement a deeper discussion leads you to understand what makes one member of the team concerned is a different lens on the problem that can sometimes be resolved.”
de Longis said his team, which uses a top-down macro approach, often gains valuable insights by getting into the detail of disagreements with their colleagues on OFI Global Asset Management’s bottom up teams.
“Sometimes a bottom-up credit manager is able to inform you of some interesting dislocations that are happening, say, within indices or the real assets within their sphere,” he said. “We don’t consider it a difference of opinion when we consult with the bottom up teams. We just consider it a difference opportunity set. We don’t know what they know, and the other way around.
“Overall we take a very systematic and structure research approach. But the decision-making approach on the final fine-tuning of the ideas requires a lot of discussion and qualitative elements.”
de Longis’ team of four portfolio managers and 10 research analysts uses a voting system to create consensus.
“Not everybody’s vote has the same weight. But we try to measure that consensus but also the dispersion,” he said.
Time to apply big thinking
Cbus Super investment manager, innovation and strategy, Alexandra West, advised against setting false expectations around the scope for new or offbeat ideas to be seriously considered.
“You need to tightly define the problem you are solving for, you need to ask the right questions around it, and the idea generation needs to be informed,” West said. “I don’t think it is any good asking people to ‘think outside the box’ or that it is fair to say ‘all ideas are great’, because it is not true. I am not interested in all your ideas. I am interested in your ideas that help us solve our problems.”
West said professionals in the investment industry tended to be “really good” at coming up with investment ideas and encouraged them to spread their wings to look at coming up with ideas outside their normal parameters.
“I would love to see more asset owners start thinking about more strategic ideas about how they do things,” she said. “That might be how to get closer to their end users, or how to deploy capital across the spectrum, or how they might invest in a way to support their members’ industry, or just better align with the fund’s aspirations.”