Let’s say that you are a fund manager determining how your traders/PMs can grow in their profession. What asset management training strategies – or actual asset management coaching, that you can promote as a leader – should they follow? Or let’s say that you are a trader/PM yourself, trying to figure out how to become better at your job in order to be better compensated / promoted / gain higher allocations of the fund/portfolio. What to tackle first?
The Dimensions of Asset Management Training
Working on talent management with several fund managers, I’ve noticed that the professional development of traders/PMs builds on four major dimensions:
- Finance expertise (knowledge of asset classes and investment techniques);
- Investment process mastery (portfolio construction, trade execution);
- Behavioral mastery (managing emotions and biases);
- Firm contribution (idea generation, collaboration with analysts);
For analysts that are not investors, there are two main areas:
- Research quality (quality of analysis, research and models);
- Firm contribution (idea generation, collaboration with analysts);
If besides being a trader/PM you also do your own analysis and research, then these combine into five major dimensions (the firm contribution one is duplicate).
Fund Manager/CEO and/or CIO
Past this, if you are already in the fund manager/CIO stage, you will need to focus on primarily the same dimensions, although on a larger scale (portfolio construction for five portfolios of 300M€ each, for example, versus one portfolio of 100M€). You might also have to modify the following processes – or create from scratch if starting your own firm:
- Fund administration and operations (accounting, integration with prime brokers, custodians, auditing, legal);
- Balancing asset growth and investment quality (having the capability to preserve investment process quality with higher asset quantities as the fund grows);
- Risk management and compliance (and its integration with the actual investment process);
If you are also a CEO, besides the “basic” asset management training topics mentioned, you will need to focus on other areas (this list is assuming you don’t outsource any of these):
- Capital raising and fund marketing (preparing materials, having an Investor Management System, articulating investment process, educating allocators and more);
- Leadership (defining vision, mission, culture and indoctrinating hires and employees);
- Talent management and development (helping others develop in their career);
We tackled the general topics in terms of asset management coaching for different roles. Let’s dive a little bit more into each topic now.
- Finance expertise. Always evolving and highly attuned to the fund/portfolio that you are managing. While properly analyzing stocks is essential to long/short equity strategies, knowing about currency dynamics, interest rates and other political/geographical factors is important to a macro fund needing those. You can never dig deep enough into your area of expertise. For example, in terms of stock analysis, everything from analyzing financial statements to annual reports to entries and exits of key talent, to satellite imagery of company vehicle routes can count;
- Investment process mastery. The capability to properly construct a portfolio/fund and to determine goals and expectations top-down. If this is a $100M portfolio to generate 12.5% return in 1 year, that’s $12.5M. What strategies fit this portfolio? What’s the necessary flow of ideas and trades, and in the case of trades, with what necessary profit target, risk profile, and overall W/L and P/L ratios?
- Behavioral mastery. The capacity for self-awareness, knowing what emotions you are most prone to and hedging against them. Usually this is deceptively simple: overly optimistic impulse investors must be more cautious, and overly cautious must be more impulsive. Simple but not easy. This also includes subtle interpersonal relationships like subsuming ego, trusting others, sharing ideas even when they are proprietary/unique, and others;
- Firm contribution. One of the most important areas is idea generation. For traders/PMs that do goal setting, they are already on a timer to produce quality ideas. You need to have both a high number of ideas but also ways to improve the quality of these. Analyst-trader collaboration is also very important. Unless the analyst and the trader are the same person, there can be a very big rift between who creates the research and who builds the actual investment thesis that will have P&L consequences. Finally, sharing war stories with fellow investors helps unblock problems like not sizing up on high conviction trades or impulse trading;
- Research quality. Your capability to corroborate your original research ideas with facts. These can come from multiple areas, not necessarily finance (for stocks, for example, a very popular one is human sources of information). Quality analysts that create outstanding research have a capability to “dig deep” and “know the names” like others can’t;
- Firm contribution. Similar to the above for traders;
Fund Manager/CIO Areas
- Fund administration and operations. Many of this can and is usually outsourced. For fund managers/CIOs with a legal background, sometimes they keep legal elements like fund documentation in their functions);
- Balancing asset growth and investment quality. CIOs walk a sensitive tightrope between having a strategy that can generate excellent returns and taking on more assets that may strain the fund in terms of available assets/position sizes – or even in terms of the actual people. The capability to retain investment quality while raising more assets is important;
- Risk management and compliance. Intrinsically linked to efficient portfolio/fund construction – only defining the P/L you expect in what timeframe and with what investment tools can you define what are acceptable risk parameters and what is beyond them. Compliance depends on regulation of different sectors and financial instruments and is equally portfolio-specific;
- Capital raising and fund marketing. The capability to efficiently create and organize fund marketing materials, from the executive summary to a presentation tuned to both private and institutional allocators (including elements like aligning with current trends of liquidity and transparency, or educating private investors), having a Customer/Investment Management System, having the persuasive capability to tell a good story and clearly articulate the investment process, and more;
- Leadership capabilities. Being able to define the fund’s values and culture, and to either indoctrinate hires and employees to follow it or peacefully part ways to retain performance;
- Talent management and development. Actual talent management governance. The capability to help traders/PMs and analysts grow, unblock them in terms of behavior or emotions, assess them properly and decide in terms of compensation/promotions/allocation increases;
Conclusion: Towards Efficient Asset Management Training
The required skills in terms of asset management coaching or training for different professionals, as we’ve seen, vary based on their function and level of seniority and responsibility.
In terms of pure knowledge of finance, there are countless courses available from institutions like the New York Institute of Finance or the Global Financial Markets Institute, but finance knowledge is only when it begins.
Elements like recognizing and stopping own biases and emotions in trading, contributing to idea generation, interaction between traders/analysts and research/analysis models are also an important component for a professional of any stage, be it a professional investing in asset management training or you as a leader, as your “asset management coaching” practice to help and guide your talent.
On a more senior level, matters like fundraising from prospective allocators, fund administration and operations, managing and retaining your own talent are also important, all for superior performance at the end of the day.