Blueprint for building a performance team
Building a quality team that can adequately service the requirements of today’s UK asset management industry can be a very challenging task. Whether your team focuses on investment risk and / or portfolio performance measurement functions, finding the right people is fundamental to the success of your particular organisation. In order to install this harmonious unit within your company, there are several elements that must be taken into consideration. From factors such as organisational structures to outsourcing to recruiting, all of these elements contribute to a team’s function and how it operates. Whatever the challenges your company may have, and there may be many or very few, the aim is give you something to think about when it comes to deciding on your team and their roles. What we do know for certain is that analytic functions are on the increase and here to stay.
Organisation structures
Many teams with a headcount of more than 10 appear to have now adopted a dedicated element within the function that undertake project-type activities. Analytics will always have an evolving life cycle of projects, whether large or small. Therefore, it makes sense to have permanent dedicated resources to ensure continuity and to retain the intellectual property. Traditionally, teams have been loosely divided into functional blocks such as equity / fixed / balanced, WM / CAPS, risk, retail and attribution. Within this, differentiation was made (perhaps) between the head, manager, team leader, senior analyst, analyst and trainee. Some teams have gone down the route, with varying success, of seating people physically in other departments. It is a fine line to balance between being part of the customer experience and still one of the team — and to potentially avoid the ‘Are you one of us or one of them?’ syndrome.
Systems and applications evolve at an alarming rate simply because the asset management industry and the instrument universes move quickly. A few years ago LDI (liability driven investment), CDS (Credit Default Swaps) and even vanilla swaps were not terms in the mainstream vocabulary, but the scenario has changed and now analytics are notoriously complex. We now also see the emergence of more specialised dedicated role titles — fixed income or investment analyst, technical or senior specialist, project or business analysts, GIPS and derivatives specialists. The list of ‘i/ysts’ is ever growing.
Role titles
Since 1995, the general trend for analytics teams has evolved as follows. Firstly, they were formed by the CIO, with a loose remit for the client and client services teams on reporting requirements. Next, with the onset of the outsourcing debate, the view was that whatever can not be analysed in-house is then outsourced — naturally teams the began to report to the COO. Things moved on again. Analytics began to be a requirement along with GIPS (Global Investments Performance Standards) and risk specialists, The evolution then erred more towards CIO again and latterly into client reporting /
service functional heads. In theory, all routes provided a seamless circle of analytics fed back to the client. In theory.
How many mathematicians?
One area of ongoing controversy is the role and importance of the mathematician in analytics. Does the team need to be all mathematicians? (editor’s note: see Steve Boreham article, page 24) One of the key arts in an analytics function these days is to be able to appropriately communicate with the customer. If the customer is a credit fund manager, then a higher degree of maths understanding will always be an advantage as the topic is likely to involve discussion items with a maths-technical slant. However, if the customer happens to be a junior member of an equity-only RFP (request for proposal) team then the content and communication style might be totally different. Is a PhD or maths degree required in both cases — or even either? The argument therefore is that a balanced team of skills and non-maths based education is important.
People
The job descriptions of most heads of function include the words ‘timely’ and ‘accurate’ in the first sentences. Asset management, senior and line managers all recognise the importance and the difficulty of these, otherwise they would not be part of the job description. The author believes that this should also include the word ‘appropriate’. For example, there is little point in providing accurate and timely information that no one actually makes use of.
Salary
When building a team, whether from scratch or not, management has to pay constant regard towards industry salaries. This area of asset management has really ballooned over the last few years, as more asset managers require analysis and the instruments become more complicated. The advent of GIPS, investment risk teams and analytics functions have all contributed. Equally, asset management companies have realised the value from having analytical support functions comes at a cost. To aid the manager and HR team, there are plethora surveys and recruitment agencies offering frequent market updates.
Some of the niche areas of the industry now pay exceedingly well. The most obvious example of this are all those out there that are employed by a successful hedge fund company. It is important to remember, there can be differentiation between production and analysis as well as between traditional equities / balanced assets, fixed income, GIPS, derivatives and projects.
Most recruitment agencies and surveys have recognised there are now minimal gaps between risk and performance, apart from the really niche areas such derivatives risk professionals. Outsourcing teams and custodians are different from in-house teams, the salaries are often more attractive as a result. However, staff turnover levels are arguably higher. There are a number of factors behind staff turnover such as personal circumstances, merger and acquisition rumours, nervousness about markets, personal conflicts and career progression.
The focus of in-house teams remains largely skewed toward performance — this is not because risk is less important, but normally down to the fact risk systems are snapshot holdings based and easier to automate. Oftentimes there is no reconciliation element to provide the analysis.
In recent years, analytics teams have benefited from graduates with a generally higher academic prowess. They arrive onto the scene with excellent approaches and unexpected skills (eg, systems / computing). Graduates bring a new team dynamic, a fresh injection of ideas and often offer the team manager more longevity in roles. In the days gone by, most steered away from graduates for entry level roles, preferring people from either operations or fund manager assistant positions. This said, the UK analyst community is still very small. When positions become available, then the same small candidate set is available. The same especially applies for the managers and heads of teams.
Learning and development
Most investment houses now dictate certain levels of continual professional development. The days of finding it hard to justify professional courses to HR / purse-string holders for today’s professional appear to have dissipated. Former Harvard University President Derek Curtis Bok said: “If you think that education is expense, just try the expense of ignorance.” The industry has apparently taken this wisdom on board. The introduction of the CFA Institute’s Chartered Financial Analyst (CFA) programme has not only considerably raised the bar for the profession but any qualification with the word ‘analyst’ in the title lends itself perfectly to a one-way argument. The nascent CFA Institute’s Certificate in Performance Measurement (CIPM) programme aims to lead to a universal qualification for the performance professional. The majority of participants, thus far, are based in the US and Canada. However, signs are that the benefits — migration across the Atlantic — will gain momentum. The Investment Management Certificate (IMC) and Investment Administration Qualification (IAQ) also service in this area for the entry-to-medium level appetite.
Motivation
Clearly, motivating any team is a key element to any department. Everyone craves the interesting roles — analytics is no exception. All roles have their mundane elements — again analytics are no exception. Functional heads often remark that the ‘menial’ or ‘boring’ tasks are often the most important. There is little point in having a Ferrari, without supplying it with petrol. Motivation takes all kinds of form. Generally a combination of experience, luck and communication can generally allow the motivation to be found. For example, I recall an analyst that inherited, as part of a merger, someone who had been doing the same role for a number of years. A chance comment made by a non-performance colleague led the manager to believe this person was interested in the IT aspects. The analyst went on to provide some very robust automated solutions that changed the face of the team’s service.
Customer focus
Following on from the point above about the word ‘appropriate’ appearing in the job description. ‘Production’ functions remain important, but are increasingly becoming a smaller part of the service and the customer experience. It is important to define, decide, develop and deliver a suite of Service Level Agreements (SLAs) with both your customers and suppliers. Periodical reviews of the service in conjunction with your customers will help to ensure the service remains aligned with business requirements. Continuing with a service ‘just because it has always been done’ can lead to a total mismatch of expectation and a waste of valuable resources. Those that are most able to achieve a successful profile within the asset management company have demonstrated an ability to respond to and service the needs of the all stakeholders (suppliers and customers) with equal aplomb. This is no mean feat.
Data management
In recent industry events data integrity, accuracy and quality issues dominate discussions. Analysts generally balk when terms such as ‘data mining’, ‘grunt-work’ and ‘reconciliations’ are mentioned, yet they remain a part of the day-to-day tasks. Looking on the bright side, with more data and more complex instruments, there are inevitably more problems and that keeps us all busy and in increasing demand. These elements is now a common part of all roles within support functions like the analytics team, although some companies have a model whereby there is a dedicated function responsible for trapping data issues.
Quality assurance and controls
In a world whereby deadlines are becoming shorter and systems more automated, quality assurance and controls has come to the fore. Client reporting teams generally have fewer axes to grind with items later but accurate, as opposed to on time and then revised six times. Analytics functions are in entirely the same position with respect to data but generally take more criticism (and ownership) than perhaps they should.
However, when the QAC issues are due to human mistakes in the spreadsheets, then the functional head has little scope to defend. Humans make mistakes, but humans also have the intellect and vision to put processes and practices in place to mitigate human mistakes — that is the theory and the author reserves the right to stick to it. There remains no opposing argument to the fact that the analytics team add considerable value to the asset manager by acting as a control function on data, however much we hate it.
Outsourcing
It is now generally accepted as a concept that homogenous, repeatable, standard reporting can be produced anywhere. The perfect example of this, in the UK, was the pre-eminence of CAPS and WM reporting in the 1980s and 90s. It was the same service for everyone. It is equally accepted that added value and analytics services are much more difficult to outsource as a) there is an element of intellectual property and experience required; and b) analysis and added value services ordinarily require a particularly close proximity to the individual investment process(es) and people.
Other facets of success
Flexitime
A growing trend appears to be towards more flexible approaches. Certain houses routinely require the weekend to complete tasks to their client expectations. Others split their teams into shifts. Time off in lieu (either officially or unofficially) is commonplace. Working from home is much more common as is the usage of the BlackBerry. Investment fund managers ordinarily arrive [in the UK] as the Japanese and other Far East markets are closing and before the various European bourses open. Analytics teams often work late into the evening. This can create a situation whereby the fund managers’ perception is that the performance teams are never in the office and vice versa.
Us or them?
It is always a fine line between ‘one of us’ and ‘one of those management people’. If this balancing act is not hard enough, those newer to management always find delegation skills even harder when their background is to have worked their way up the ladder. The feeling that one is able to do it quicker or better oneself is a hard habit to break. Those adopting this approach might one day consider, “How will anyone else ever learn new skills if
I keep doing it myself?” not to mention “How will I learn any news skills / tasks?”
Whether management skills can be successfully implanted through training is a topic open to debate. But there are qualities that can assist:
· one-to-one coaching;
· active development of leadership skills within the team;
· development of interviewing skills (recruiting, suppliers and customer);
· knowledge of employment law;
· disaster recovery planning;
· regular team meetings and team building exercises;
· regular appraisals;
· finding the motivation for each individual within the team (Myers Briggs, Belbin or Maslow psychological models may be of use in this);
· regular new recruitment;
· strong communications (including influencing and persuading) skills;
· budgeting;
· regular review meetings with vendors and customers;
· expertise in technical guidelines / regulations (FSA / GIPS / UCIT, MIFID, GIPS);
· recruiting appropriate expertise in technical aspects (statistics, VaR, MWR, TWR, CAPM);
· careful vendor selection;
· accurate skills for RFPs.
There is no saying this is an easy task to implement all this for maximum efficiency. And articulating problems and outlining approaches is the first step to finding constructive solutions.
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