British fund managers found wanting
Stephanie Schwarz on the reaction to a critical study
A recent report commissioned by the UK Fund Managers’ Association highlights problems in the management and structure of UK investment management firms that may leave them unable to compete in the early decades of the 21st century.
The team behind the report, the Centre for Research in Employment and Technology in Europe (CREATE) conducted a postal survey of 77 UK-based investment management firms, and followed this up with structured interviews with 35 of them. The companies – small, medium and large – account for nearly 90% of funds under management. These interviews supplied the data used to describe the state of play among UK fund management firms.
According to ‘Fund management: new skills for a new age’, firms need to take practical and immediate steps to remedy shortfalls in management. “The plain truth is that the changing market requires some profound changes at the workplace, if Britain is to retain its current pre-eminence in one of the three time zones in global fund management,” the study states. “Unless they are implemented, the industry may go the same way as cars and chemicals, once jewels in Britain’s business crown.”
It maintains that: “...central to any business model is how a firm leverages the knowledge and talent it has. The current ‘star culture’ has served the industry well, especially when firms were vertically integrated. However, the new market forces, with greater interdependency between players, require that it be orchestrated by a different kind of business leadership from the one that has prevailed hitherto.”
The report goes on to make concrete suggestions for change: “What other financial services industries have done in the last decade to prosper, fund management will have to do in this one to survive, namely: develop leaders who understand the new market dynamics; demystify the craft of investment management without compromising creativity; make it multi-skilled; and temper excessive individualism with team discipline.”
According to the report, many UK fund management companies have become complacent: “The industry has grown substantially on the back of a long bull market, starting in the 1990s. This has ensured that change within most firms has been reactive, tactical and incremental. Outside a minority of firms, there is, as yet, no strong tradition of forward thinking and pre-emptive actions. The buzz of the investment function is often confused with leadership.”
The firms surveyed admitted that there are notable skill gaps among both senior executives and business managers, and investment managers. More than 50% said that senior management needs to improve its strategic thinking, and just under 50% noted a lack of ability to inspire trust and motivation among employees. These skill gaps were more conspicuous in large and medium-sized firms than in smaller, niche firms, which benefit from a ‘collegiate’ management culture.
Investment managers also had major skill gaps. Although their investment skills will always be a top priority, the changing business climate will demand that they improve their ability to work as team players: more than 60% of firms questioned stated that their investment managers need to improve in this area. They also need to develop a broader business awareness, according to around 55%.
As the report explains: “Investment managers are now expected to have a blend of hard and soft skills. Excelling at their craft is more than a matter of being good at portfolio construction and stock selection... Teamworking and information sharing are becoming central to success.”
The study notes that firms are aware of their shortfalls and will be taking measures to correct them over the next five years. Many are beefing up their formal training agendas and also looking to mentoring programmes and other forms of internal coaching. However, nearly all firms admit that time pressure on both senior executives and investment managers is a major constraint when it comes to implementing further training initiatives.
The study also criticises the narrow perspective taken by investment management firms looking at broadening their skills base. “What is worrying ... is that many of the other avenues of leadership development which have been found to be especially effective in environments as diverse as banking, oil, IT, retailing and pharmaceutical — to mention a few – are neither used to any significant scale now or are likely to be used in the future. They include lateral transfers, stretch assignments, international secondments, peer networking, simulation exercises, secondments to client or partner organisations and community work.”