Culture is critical to the success of an asset management company, but how do firms thrust together by a merger make it work? Emma Cusworth finds out.
“One of the biggest challenges when merging is to sustain the culture or create something new. If firms are not able to get it right, assets move away very quickly so it can rapidly destroy a business.”
Luba Nikulina
Culture is one of the critical factors to the success of an asset management company, particularly for active managers. Despite being intangible, culture is something that requires careful management if it is to remain strong. Changing culture normally takes a considerable period of time, but that is not always possible.
Where two firms merge, or where a team or extreme talent joins a new house, the merging of cultures has to happen within a matter of weeks. Without careful management of the cultural aspects of the merger, investors are at risk of value destruction and need to ensure they are comfortable with the impact that could feed through to their performance figures.
THE GLUE THAT HOLDS IT ALL TOGETHER
The ability of an asset management firm to create sustained investment performance is heavily reliant on the firm’s culture. Manager research teams have long focused on this as a core part of their due diligence and monitoring, but its importance can be underestimated by asset managers because it lacks tangibility.
According to Luba Nikulina, global head of manager research at Towers Watson: “ Culture has always been a key critical success factor in assessing the quality of an asset manager, but it can be incredibly difficult to get right, even where an organisation is focused on a single asset class. In a multi-asset strategy it is even more complex. The mentalities across asset classes like equity, fixed income and hedge funds are very different so it is harder to create the glue to hold the firm together.”
At the heart of culture is leadership. Many aspects of culture are what Roger Urwin, Towers Watson’s global head of investment content, who has spent considerable time looking in depth at the importance of culture to investment performance, calls “mere accidents of history”. It is collective influence from shared values and beliefs on the way an organisation thinks and behaves, and is the invention of leadership past and present.
In order for an asset management firm to be able to post good returns over a long period of time, the culture within the firm needs to be one that encourages the best of its staff. How they manage and bring out talent, for example, is a critical issue.
WHEN CULTURE GOES WRONG
The importance of culture for asset management firms was highlighted last year in a number of notable examples, not least Neil Woodford’s departure from Invesco Perpetual, which subsequently suffered 11 consecutive months of outflows with over $5bn in AUM wiped off the two funds he had managed.
Perhaps the most high-profile example, however, was the departure of the ‘Bond King’, Bill Gross, from Pimco, the investment house he founded in 1971 and subsequently built into one of the most influential investment managers in the bond market. At its peak, Gross’s Pimco Total Return fund was the largest mutual fund in the world with $293bn under management and had become a core part of millions of investment portfolios globally.
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