Knowing what to ask – and how to ask it – matter more than ever
By Clare Flynn Levy
Clare Flynn Levy is CEO & Founder of Essentia Analytics. Prior to setting up Essentia, she spent ten years as a fund manager, in both active equity (running over $1B of pension funds for Deutsche Asset Management), and hedge (as founder and CIO of Avocet Capital Management, a specialist tech fund manager).
With uncertainty in markets and tension in many global economies running high, questions abound. Most of those questions are noise, and many are unknowable: they are questions about the behavior of others – politicians, consumers, market participants – who don’t necessarily behave as expected.
But there are also questions that are worth spending precious resources finding answers to – where asking that right question will make all the difference to performance outcomes. Regardless of the environment, asking the right questions of investment decision-makers is crucial to success, whether you’re an asset allocator selecting managers for your capital, or a portfolio manager, seeking to outperform.
It’s time to ask new questions
While the importance of asking the right questions hasn’t changed, the questions themselves have. The fund management industry has been asking itself the same questions for a very long time: Which products have been performing well? What is your investment philosophy? What is the explanation for recent underperformance?
But assuming the end game is alpha generation, the question everyone involved should really be asking is “Is the manager of this portfolio making skilled investment decisions?”
After all, that’s what we’re all paying (and getting paid) for. And if the answer is no, the investor’s capital would be better off in an index fund.
But what if the answer is no – and you’re the fund manager?
Believe me, I get it — I used to be a fund manager myself, and I’ve worked with hundreds of them over the years. No one actually wants to see proof that they’re not adding value. And there are definitely some fund managers who can’t relax their defensive instincts enough to look in the mirror this way.
But fund managers do tend to be highly intelligent and analytical people — rationally, they can see that in order to do their job well, they need to understand what they are doing that is helping and what is hurting.
And the reality is that no matter who you are, or what your profession, you’re doing some things that are adding value and some things that aren’t. Once you know which is which, and reallocate your energy accordingly, success becomes more attainable, and life gets immeasurably better.
So for that fund manager who’s not making good decisions, the next question should be “What could I be doing differently with my time and energy that would add more value?”
If the answer is yes, on the other hand — if there is already clear evidence of skilled decision-making — then great! Now your fees are justified. Allocators are still willing to pay for skill – they just want to be able to refer to something more predictive than past performance to make that call.
To take that a step further, for the asset manager’s product and distribution teams, an obvious question then becomes “For which of our products can we prove decision-making skill?” or even “How can we combine the best skills of our portfolio managers to create more products the market wants?” Why not lean into what we’re good at, rather than just into what has performed well recently?
Get Good at Asking Better Questions
Whether you’re a fund manager, an allocator, or a product or distribution lead, your odds of success will be massively shaped by the questions you choose to ask.
If you’re ready to evolve your thinking, we’ve compiled a short list of high-value questions that you can ask — and answer — with decision attribution analytics, whatever your role.
👉 Download the Key Questions for Asset Allocators
👉 Download the Key Questions for Portfolio Managers
👉 Download the Key Questions for Investment Oversight Professionals
👉 Download the Key Questions for Investment Marketing and Product Specialists
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