The best and worst fund manager interviews of my career
This essay appeared in Citywire Selector on April 7, 2010.
Face-to-face meetings with fund managers give selectors the opportunity to get beneath the veneer of expertly designed pitchbooks, well structured questionnaire responses and marketing spin.
The performance looks good, the process is well articulated, and initial meetings with the sales contact have been promising. The best person to give insights about the future of the fund is the portfolio manager.
Being properly prepared for the meeting is key to success. Reviewing questionnaires, marketing material and portfolio performance ahead of the meeting will put you in control and allow you to get beneath the surface with probing questions.
The better prepared you are as an analyst, the less you have to stick to the script – this is where the true insights are garnered. I have had the pleasure of spending time in conversation with some of the world’s most insightful investors who demonstrate not only impressive investment acumen but a high level of humility, candidness and curiosity.
Some meetings have been enlightening, others have been discouraging and aggravating. What I have learned most is that real insights come when a high level of preparedness and some gut feeling lead the conversation into potentially unexpected directions.
Asset management is a human-centric business. As such, there is a great deal of psychology involved. Understanding what motivates a manager is extremely helpful in determining how they will react in certain investment environments and the risks they might take.
What follows are two highlights from meetings I have had – meet Mr Ego and Mr Cookie (identities have been hidden to protect the innocent!).
Portfolio managers have a high level of confidence – it’s a crucial aspect of the character of someone who makes high pressure decisions about other people’s money.
However, with confidence often comes ego. Strong performance, media attention and heightened asset flows (along with the requisite pay cheque) all have a way of inflating the ego. A manager who has enjoyed great success is often susceptible to becoming enveloped in it, and losing touch with reality. These are typically the managers who lead the charge when a bubble is being formed. They may even believe they have developed an infallible methodology for controlling risk – sure signs that the end of a great performance run is near.
When a portfolio manager is motivated by hubris, it can be helpful to ask a question that resets the conversation. I was surprised time and again when managers had strayed so far from reality they could not muster a well thought-out answer to the request, ‘Give me an example of a recent mistake you made and how you dealt with it.’
A typical response from Mr Ego goes something like: ‘Ah, good question. Hmmm. A mistake…that’s tough, I’m sure there’s a mistake I made at some point… Let’s see, well there was XYZ company, but that wasn’t really my mistake, it was Jan the telecoms analyst who is an idiot – I fired him. Or maybe the investment in ABC company. The stock may be down 50% from where I bought it, but the market is foolish and mispricing it.’
Mr Ego blames everyone but himself. Finding a fund manager who didn’t make mistakes would be remarkable indeed. As a selector, I prefer to invest with a manager who occasionally makes mistakes, admits as much, learns from them and moves on.
The first time I met this well known portfolio manager some years ago, our conversation touched on the summer holidays. Mr Cookie had recently spent a couple of weeks in an idyllic town on the Italian coast. Most of his time was spent reading and enjoying the local cuisine, with one delicacy in particular taking his fancy.
He told me how he would walk into the town centre each afternoon and visit a small bakery that made the most delicious cookies he had ever eaten. The day before he was due to fly home, he panicked – his afternoon cookies would soon become a thing of the past.
However, instead of buying his last afternoon delight and bidding the baker ‘arrivederci,’ Mr Cookie took a different approach – one I found remarkably similar to the way he managed money. He informed the baker that because he enjoyed the cookies so much and they were such good value, he wanted to take some home with him. He would be back in the morning before his flight to pick them up. ‘How many do you want?’ asked the baker. ‘All you can make,’ Mr Cookie answered.
Now laughing aloud, he described the boxes of cookies he took with him on the plane and, realising he would not be able to take them all on board, he had several boxes shipped overnight to his home. He ended up with his kitchen overflowing with cookies – he couldn’t eat them or give them away fast enough before they went stale.
In the investment world, this manager is one of the sharpest, most engaged and insightful I have met. He is renowned for his aggressive approach to investing – taking concentrated positions and investing in markets prone to becoming illiquid and stale, but great while they last. Mr Cookie definitely lives the story.