According to Stefan Dunatov, chief investment officer of Coal Pension Trustees Investment: “ETFs are just a replication tool so the culture required to make that work is much more implementation based and very different from a hedge fund where investors would want to see decisions being challenged in an appropriate manner.”
And even where cultures are a good fit and two companies merging have similar business models, there may still be risks associated with a transition period. “Within every merger there is an aspiration of synergies,” says Sally Bridgeland, senior adviser with pension fund investment governance consultants, Avida International.
With synergies comes a natural concern among employees over duplication of roles and how work load gets divvied up in the new entity. “When asset management firms are merging,” Bridgeland adds, “there are two important things to look at. Firstly, how is it impacting the confidence of the people and how much energy are they putting into their normal activity versus internal cultural issues. In a hierarchical or political culture the growing pains associated with merger can be particularly key as it can create distraction. The more bravado there is within an organisation, the more anxiety there usually is as well.”
A MULTI-CULTURAL MODEL
Of course, some organisations have been very successful at growing through acquisition and, in today’s investment world, the model that stands out in this regard is the multi-affiliate model. Managers such as BNY Mellon, which house a number of asset managers, including Insight Investment, under a holding company umbrella, allow those companies to continue to operate within their own culture.
Insight is regarded as a strong example of how this model can work to the benefit of end investors. “The model explicitly doesn’t impose a different culture on the company and there is evidence companies can get on very well with that,” the senior independent expert says. “The people at Insight are uniformly enthusiastic about the organisation, its ethos, culture and leadership.”
Eaton Vance Management International, which owns Parametic and Hexavest within its stable of managers, operates a multi-affiliate model.
President Niall Quinn says: “In theory, culture can be aggregated but there is a risk in trying to do it and trying to do it too frequently – and we prefer not to take that risk. We have shied away from aggregating and our multi-affiliate model is the clearest example of this. As a company we share in each other’s commercial success, but at the same time allow teams to have autonomy.”
TAKING A VIEW
When faced with a manager that is going through a consolidation process, or is taking on either a team or star talent, there are some important questions investors should ask. Nikulina’s advice is to question them to ascertain whether the leadership has a clear vision for how the culture of the merged entity is going to work. Look also at the structure and alignment of incentives. It is rare two organisations have the same incentive structures in place and this is a critical part of what shapes and drives culture within firms. The mission and purpose of the merged entity is also important as it will determine the extent to which they are aligned with their client, which, she says, can vary by no small degree across the industry.
However, there is a danger of being fed a pre-agreed line. According to Bridgeland, subtle nuances can give a better insight into the emotional response of a manager to the process of change.
“It is more intuitive than just asking factual questions,” she says. “You should be able to tell if a person is anxious or comfortable about their job and/or firm through their eye contact or their body language, for example.”
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