Col­lec­tive In­sight: Pick­ing fi­nan­cial ex­perts

The art and sci­ence of pick­ing a fi­nan­cial ex­pert

Finweek English Edition - - INSIDE - BY SANGEETH SEWNATH, IN­VESTEC AS­SET MAN­AGE­MENT Sangeeth is the Deputy Man­ag­ing Di­rec­tor of In­vestec As­set Man­age­ment. His pre­vi­ous roles in­clude Global Head of Prod­uct De­vel­op­ment at In­vestec As­set Man­age­ment where he gained his global ex­pe­ri­ence. Sangeet

Just what con­sti­tutes skill or ex­per­tise? And how would you go about find­ing it, never mind defin­ing it? This quar­ter in Col

lec­tive In­sight, we ex­plore what makes an ex­pert – be that an as­set man­ager, ad­viser, trustee or in­vest­ment con­sul­tant – and our con­trib­u­tors have shared both qual­i­ta­tive and quan­ti­ta­tive per­spec­tives to an­swer this tricky ques­tion. There is no doubt that while there is sci­ence in as­sess­ing skill, there is an art in de­ter­min­ing whether ex­per­tise can be sus­tained in the long term. Ul­ti­mately, it re­mains your job to choose the ex­pert.

In the first ar­ti­cle, Michael Streat­field looks at how the rapid ad­vance of tech­nol­ogy has meant that in­for­ma­tion is every­where. It has changed the way we draw on ex­per­tise. No longer do we need to seek guid­ance or ad­vice from our net­work of fam­ily, friends and ac­quain­tances – the In­ter­net is lit­tered with ‘ex­per­tise’. How­ever, he ar­gues, in the in­vest­ment con­text it is not about the in­for­ma­tion or data that is avail­able – it is when that in­for­ma­tion is syn­the­sised in a mean­ing­ful way that skill is demon­strated. He also picks up on the ‘man ver­sus ma­chine’ theme, and sets out the value add of ex­perts ver­sus com­put­ers when there is a limited range of out­comes ver­sus a wide range of out­comes. He con­cludes that there is a place for both, but sets out lessons for trustees, ad­vis­ing them on how bet­ter to nav­i­gate this brave new world.

Our sec­ond ar­ti­cle takes a qual­i­ta­tive look at what makes an ex­pert as­set man- ager. In a nut­shell, the au­thors agree that it comes down to people, process, per­for­mance and phi­los­o­phy. We would add cul­ture as a fur­ther im­por­tant con­trib­u­tor to suc­cess­ful as­set man­age­ment – if it is well ar­tic­u­lated, clearly un­der­stood and con­sis­tently lived. Team­work is also cru­cial to get­ting the best ideas from tal­ented people.

The team from Pere­grine goes into more quan­ti­ta­tive de­tail on how to mea­sure skill. While it is easy to mea­sure in­vest­ment per­for­mance, and so to sur­mise that re­peat­able per­for­mance is based on skill, it is much harder to mea­sure skill. They em­ploy an in­no­va­tive way to con­tex­tu­alise this by us­ing cross-sec­tional vo­latil­ity to mea­sure the op­por­tu­nity set and thus to eval­u­ate fund man­ager per­for­mance when luck is taken out of the equa­tion. It’s an in­sight­ful read and a fresh per­spec­tive on skill be­yond people, process and phi­los­o­phy.

In our fourth ar­ti­cle, Deon Gouws as­sesses the traits of an over­all wealth man­ager. Will per­for­mance alone count, or will a wealth man­ager be mea­sured on un­der­stand­ing the client needs, ed­u­cat­ing the client and, con­tro­ver­sially, which clients to work with the wealth man­ager’s style. No ar­ti­cle re­lat­ing to ex­per­tise and skill in the in­vest­ment world can ex­clude ref­er­ence to War­ren Buffett or maybe… Lionel Messi and Cris­tiano Ron­aldo.

Mov­ing from the the­o­ret­i­cal to the prac­ti­cal, we have also in­cluded a check­list to high­light what kind of skill and ex­per­tise are re­quired to be a suc­cess­ful wealth man­ager, trustee, in­vest­ment con­sul­tant and pri­vate eq­uity busi­ness. What are the top 10 ques­tions you should be ask­ing your provider?

Fi­nally, we con­clude this edi­tion with an ar­ti­cle that turns the sub­ject mat­ter on its head and raises a point which we, in the in­dus­try, don’t spend much time think­ing about. Del­phine Goven­der shares a very in­ter­est­ing per­spec­tive by ask­ing what makes an ex­pert client. What is it that we as providers would value in our clients? Some­one who be­haves in a ra­tio­nal man­ner, who holds onto their in­vest­ment troughs and peaks and buys an in­vest­ment rather than sell­ing it. In short, some­one who un­der­stands their in­vest­ment ob­jec­tives and re­mains com­mit­ted to them.

We trust you will en­joy the read.

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