Recently, my boss T.J. Carlson was named Chief Investment Officer of the Year by Institutional Investor, an award voted on by other allocators.
(There’s a point to this, other than blatant brown-nosing. Okay, so maybe a little brown-nosing, but stay with me.)
His thank-you speech was short and sweet, not surprisingly. T.J.’s not one for verbose pontificating, but what he does have to say is always worth listening to. And also not surprisingly, the first thing he mentioned was his team. He said none of his success would have been possible without them.
Having worked for him for nearly a decade, I’ve learned the wisdom in those words. Institutional investing is indeed a team sport.
The challenge of investing tens of billions of dollars of assets entrusted to an institution for the ultimate benefit of underlying individual constituents (i.e. actual people) demands it. It takes the collective efforts of a team of experienced, hard working professionals to effectively source, evaluate, underwrite, execute upon, and risk manage such huge portfolios, particularly when those portfolios are globally diversified across virtually every investable asset class, including alternatives. We all have our jobs to do.
Identifying, attracting and retaining performance-oriented team players accountable to one another is critical — and in an industry long steeped in rock star cultures and often dominated by enormous egos, it’s also easier said than done.
In my experience, some of the most underachieving teams have been those that were built around a collection of talented stars with little regard for team dynamics. It’s obvious in sports, where underperforming organizations struggle to manage personal agendas attributable to prima donnas who demand the ball or so-called locker room cancers who throw teammates under the bus. Such conflicts eventually show up in the results on the field.
On the other hand, high-functioning teams put the right people in the right positions to make the right plays, and they all pull in the same direction. On those teams, the stars are the first to take the blame for whatever went wrong and give their teammates all the credit for the big plays.
If you want a collaborative culture to work, it needs to be part of the very fabric of the organization. You must consistently push accountability and empowerment to your team, keep performance measures transparent and ensure those incentives are aligned with your investment and organizational objectives.
Ben Carlson details some of the important characteristics that distinguish effective investment teams from less effective ones in his 2017 book Organizational Alpha. These include collective effort, personal and professional respect, integrity, a focus on the client outcome, and a culture of accountability.
In his opinion, the best investment organizations embody these characteristics, and like the sports example above, it shows up in their results, too.
Human capital and talent management think tank the Institute for Corporate Productivity (i4cp) has conducted research showing a similar result. i4cp scored 57 publicly traded companies on their proprietary performance feedback culture (PFC) metric, which essentially measures how tightly employee motivation and development is linked to performance and retention.
A subsequent analysis of financial results showed that the companies which scored in the top third on this PFC measure had roughly twice the level of net profit margin, return on investment, return on assets, and return on equity as those firms in the bottom third.
Further, some other interesting recent research shows being a team player isn’t just good for the team; it’s better for our own mental and physical health as well.
Social psychology has long theorized that heightened and persistent self-focus is central to the development of depression. Further, studies have shown that first-person singular pronouns, such as “I”, “me,” and “my,” are closely associated with the state of self-focus. The higher the use of these pronouns, the higher the measurement of self-focus, and vice versa.
And in an article published in Clinical Psychology & Psychotherapy in January 2016, several researchers conducted a study of patients diagnosed with depression which demonstrated that higher use of first-person pronouns by subjects was significantly predictive of increased depressive symptoms over time, even controlling for baseline levels of depression. In plain English, all else being equal, people who used “I,” “me,” and “my” more often were shown to have worse depression eight months later.
Interestingly, the same phenomenon appears to affect physical health as well.
I found research published in the Journal of Behavioral Medicine back in 1990 that showed that high frequency and density of self-referencing during speech was predictive of a higher incidence of coronary heart disease among high-risk males, even after controlling for cholesterol levels and cigarette smoking. Saying “I,” “me,” and “my” more frequently than others foreshadowed higher rates of subsequent heart disease as well.
Thankfully, we can avoid this vicious cycle by instead making it a virtuous one — empower qualified individuals to focus on the outcome, and the team collectively will be healthier, happier, and outperform, which is all better for the individual and the team.
Although pretty simple in theory, it’s surprisingly difficult to implement in practice. But I know I will be trying harder this year.
Or, should I say, we will.