Why did Mr. de Botton bring you on at GAM? After about 10 years of managing private client assets, in the mid-1990s, (Gilbert) decided that he wanted to start creating funds. In his words, have professionals that were independent in thought, with one thing in mind — the performance of the funds. He wasn’t interested in people who wanted to build careers. He just wanted to focus on performance. My passion is performance. I feel as happy this morning about … performance as I did the first day I joined.
You really are completely focused on performance. Oh, yes. It’s a strange sort of job whereby you love it, but you wish your day away, hoping to preserve the performance you already have.
What were the most important lessons you learned from Mr. de Botton? He taught me three things. He was a brilliant man and was really aware of clients. What he told me was that if a client wants his money, you’d better give him it that day or very close to it. Liquidity is vital. Because if you give a client his money back very quickly, the chances are he’ll come back once you’ve shown that you’ve improved whatever was wrong. You need to act swiftly.
The other thing he taught me was to treat absolutely everyone you meet in this business with humility. Yes, I’m the buyer, but I am a parasite on other people’s genius. Gilbert showed me that you have to be cognizant of it. He often said that even if you are successful, what does it matter? What does it cost you to behave with humility? He was absolutely right and I think he recognized this in me because of the way I was brought up. The third — and I think the most important — lesson was to never lose the passion for performance. Because all the spin, all the presentation, all the PR will not make any difference if you don’t have performance.
What do you do to keep GAM’s investment staff loyal and happy? Well, very few people have ever left through choice. I think it comes back to (my) being engaged with everyone. They can see how passionate I am about performance.
We are very careful about who we recruit. We spend a lot of time with them and we warn them that they have to be up for this. This isn’t a place whereby you get into some sort of political pecking order and you spend time in a bureaucracy and in 10 years’ time, you’re still going to be here. Every day, every week, every month, every quarter, every year, you are measured. And you’re measured not only by me; every single person in the group knows how Manager X did that week and why he succeeded or failed. It’s a challenging environment.
I don’t ask them to do marketing or sales or admin or operations. And that’s what keeps me here. I wanted to create an environment that would make me really really enjoy being here. That’s what I’ve been privileged enough to have done.
But because of that environment, anyone that’s lucky enough to be here needs to be proven. Economics are what they are. I don’t think anyone should join us because of money and I don’t think anyone will leave us because of money. I think what we pay is right for our people. But we’ll only pay if you deliver.
How did staff react when you closed the funds in 2004? We closed them (to new flow) because we thought (growing too fast) might impact existing investors (through lower performance). And then I trebled the size of the research team. The positive sentiment from everyone was tremendous. Staff thought it was great that we would spend more of our money and therefore have less profit as an organization in order to do the right thing because we want to build a business for more than the next one, two or three years. It all comes back to the culture of performance. That exists even at the board of directors’ level, (because) they voted to close the funds.
Are you still willing to close funds if you need to you? Yes, we will; but we’re in a different place now. We’ve got 120 people in the hedge fund research group and that generates a new idea flow that is pretty phenomenal every single month. We’re going to be able to grow at a significant rate, if we choose to do so. We want to grow, but in a constrained fashion. We’re never going to have 200 sales people. I don’t even think we have 30 globally.
How do GAM hedge fund researchers find new investment ideas and managers? We met 873 new hedge funds in 2006; we followed up with 1,530 other managers; we are invested with between 160 and 170 managers in total. Of those numbers, we invest in typically about 5% of the managers we meet in a year. In all the years I’ve been doing this, (the percentage we invest in) is always round about 5%. I have no idea why. So we end up investing in about one in 20 of the managers we physically meet, interview and assess.
One of the things about hedge fund investing that people forget is that you’ve got to go back and re-evaluate every single manager you’ve met. We (assign) grades — A, B, C or D — to all the managers we meet. … I make sure that every quarter, we go back and evaluate how every manager in every grade did. I’ve divided the team into 16 substrategies and there’s a team dedicated to everything from convert(ible) vol(atility) to Japanese long/short to discretionary macro to event-driven. Their job is to cover the specific universe and to find what we missed. We’re constantly going through that process. It’s not easy.
By going back and evaluating what we missed, we’re learning some lessons. As we’ve gotten bigger, we’ve gotten better at recognizing structural errors and changing the process accordingly. I think the process educates itself.
