The parameters of what makes an ideal culture within an investment team can be hard to define. Diversity of intellectual backgrounds, a mutually held passion for investments, the mission of the organization and a “collegial” atmosphere were all cited as factors that make a desirable investment office culture. However, a single personality can drastically alter the cultural dynamic, and thus the team’s effectiveness, particularly in small, intimate investment offices. Ensuring that new hires fit within the existing culture is, therefore, a chief challenge to success in institutional investing. Perfecting and maintaining a “good” culture is a careful balancing act that can reap significant returns when accomplished, or lead to disastrous consequences if left unkempt.
We interviewed over 40 institutional investors, here are some of their Trusted Answers on how to build the ideal culture in an investment team:
"Endowments management is really an apprenticeship business. You can’t learn to do it in school; you have to learn by doing. I prefer to grow my own team rather than going out and hiring senior investment officers. There was one investment officer already here with really strong experience, and we hired one other person at the investment officer level. Everyone else we hired, we hired as analysts. One was basically two years out of college, was working for one of the investment banks in wealth management and had started working on his CFA. So he had gotten his feet wet in the investment business, but was really at a stage where we knew we could teach him and train him. That was the pattern that we applied to everybody else. All of those analysts have since been promoted to investment officer. We currently have one analyst now that will probably be promoted within the next year or so, and we are likely to hire a new analyst at the end of the year to start the process again from the bottom."
"The thing that I'm very intentional about is our culture. I think our culture is very different from other institutions. A lot of cultures can lead to positive alpha but when the culture changes, that's when the alpha disappears. If you think about it, think of any sports team and when they change head coaches and change culture, their record deteriorates generally. It's common sense. ...We do believe in a consensus-driven, collegiate atmosphere and the key is, I would say, management lives it and walks the talk. We don't demand the core staff to follow our culture. We actually demand management to follow the culture and it flips it on its head but it really works here."
"We operate as a team with well-defined roles and are constantly in communication with each other. We meet every Monday morning and have internal investment meetings to vet each investment before we present it to our board. But, we sit right across the hall from each other. We are not waiting for the internal committee meeting to discuss an investment. We're discussing things real time, day to day. There's a lot of discussion on marketable vs private so we're not operating in a silo. I think communication and teamwork is key. We all have different backgrounds, viewpoints and experiences and leverage each other to make sound investment decisions. I can't really comment on the practice of other firms, but I know that I feel very fortunate to work with a great group of male and female investment professionals. There are six people in our office, half men and half women. We have a great team with equal voice, and I attribute that to the leadership of our CIO, Brian Webb."
"The entire team is expected to have an opinion on every investment and there are dissenting views at times. That’s good. Our job is to constantly force curve the existing managers in the portfolio and we need to challenge each other’s individual view. You can make a bull or bear case for any investment and having healthy, objective debate is vital if we are to make better decisions long term. What’s nice is that we don’t “have” to make any particular investment. If there is a significant disagreement, then the probability we put on long-term success is lower, therefore it’s more likely the investment would not be made."
"We have tremendous longevity at the senior level here. I think the five managing directors have roughly an average tenure here of 15 years. I think that continuity of talent has really made a big difference. We're collegial, and we've known each other a long time. There's a lot of mutual respect, but also rigorous discussions about how to approach any market opportunity. One of the things that incentivizes people here at Howard Hughes Medical Institute, and the investment team particularly, is our mission. It's been very successful; we have employed 25 Nobel Prize winning scientists over the long term. One of the reasons people stick around is not just the positive nature of the intellectual environment here, but because people like the mission of the institute. Everybody cares for the reputation of the institute in a really sensible and important way."
"You have to have good people, and there a tremendous number of good people in this business across all endowments, foundations and pensions. It was nice to focus on building a small team that could be very cohesive and create the culture that I felt could fit into the existing culture at the foundation."
"...We take a lot of time when we do add someone to the team. We will take a lot of time interviewing candidates and thinking about whether they are the right fit. We involve everyone on the team, because everyone has to be comfortable with that fit. One person can mess up the whole dynamic on a team. That was something that I saw from my earliest days here."
"Diversity is such a huge part of Carnegie, and it has made a huge difference in the dialogue we have, how we engage and how we create value. I would be remiss in not saying that we are a team that is more women than is probably typical, even in the foundation space. We have people from all over the globe, as far as where they’ve lived and where they grew up. The one thing that we are not sufficiently diverse in is schools. We all come from the same schools and that’s the common strategic bent that binds us. We think about things from a slightly different perspective. Some people come from a not-for-profit background, a development background. Some people come from real estate. Some people come from a much more technical background. We have east coast, we have west coast, we have people from the middle. All of that makes for really healthy conversation. That’s an important part of who we are."