Michael Gordon describes himself as a “classic player-turned-coach”: A longtime equity portfolio manager, he held a number of management roles before becoming chief investment officer of equities at BNP Paribas Asset Management in London in May 2010. “I've always found the management of teams, the management of people, the direction of investors, more interesting than actually investing itself,” he said.
Formerly the global head of institutional investment at FIL Ltd. (formerly Fidelity International Ltd.), he was brought in to turn around equity performance, which struggled for years at BNP Paribas Asset Management, a predominantly fixed-income house. Mr. Gordon says things have improved a lot since his arrival: 61% of his funds and mandates are outperforming their benchmarks. “Three-year numbers are less than that, but still improved, and that's up from numbers that were in the 40s upon my arrival,” he said. “So things are better than they were here and better than average, by definition.”
Mr. Gordon takes a management view of performance, pointing out that he brings no “preconceived investment style views or biases, other than I believe firmly in the need to have a valid, reliable investment philosophy, and process that fits within that, and then I'm fairly confident that performance follows that.”
A native Australian, Mr. Gordon enjoys cricket and is an avid reader. Author and fellow Aussie Peter Carey is a favorite; however, Mr. Gordon has also read American history and fiction, and counts American authors John Updike and Don DeLillo as top picks. He's not, however, a fan of technology. “As a CIO of fundamental equity people, I'm very much into teams, how people interact, and I think that generally speaking we're better off with a little less technology.”
What have you done to boost equity performance at BNPPAM? There were a couple of the groups in (BNPPAM's equity business) that were working without a philosophy. They needed to be helped and coached. That is something I've been working on and something I think they're benefiting from.
Can you give an example? The one that is probably the most obvious has been listed real estate. It was a very traditional approach that we took; it was a modular approach. We had people in Asia, people in the U.S., people in Europe; put them together and we called it global. And over time, the strategies in each of the three regions worked very effectively, but the global strategy did not. And I think it is well understood that if you're doing anything in the global equity space, which listed real estate is part, smaller, single teams (perform better). That was a case where technology was actually giving the appearance ... that you can make decisions effectively that way, and I don't feel that you can.
Also, those guys were extremely bottom-up focused whereas the correlation analysis shows you quite clearly the opportunities in listed real estate investment globally are by understanding country and regional differences.
What are your goals for the first three years here? The major goal is to get that number of (outperforming mandates now at) 61% to be solidly above 67% — solidly such that our clients and those that deal with our clients and would-be clients get comfortable with the fact that we are a successful equity house, that that 67% is sustainable. (One-year performance as of April 30, released after the interview was conducted, showed 72% of BNPPAM's equity strategies outperforming.)
Are you concerned about inflation and political risk in emerging markets? Yes, no doubt. However, what that will mean is that in the emerging markets, it will get more difficult, and it will become more about alpha than beta. What that means is, you are going to have to have quality people, a quality process, all of those things you need in developed markets. That, for good-quality investment managers, is a good thing. So, I'm up for it; I welcome it.
How are things different here from Fidelity? First, Fidelity has a single platform. Fidelity has an enormous research platform and everyone feeds off that, so there's a single view on a stock. I'm much more about having my teams independent — smaller, focused and independent of each other such that you don't have the crowding issues, you don't have the liquidity issues and you just don't have those problems of size.
The second thing would be ... we put more store in the importance and effectiveness of good portfolio management and effective portfolio construction than just having the raw confidence in picking the right stocks. If it used to be that in a successful portfolio, 70% (of performance) was due to good research and 30% was due to effective construction of those ideas, that feels a little more (now like) — is it 50/50? I don't know.
Are there any investment capabilities you'd like but don't have? Yes, the big one — global equity. We have a couple of capabilities in the global sphere (but nothing that can be broadened to the entire business).
How would you look to add global equity? There are a number of things that we are looking at. We're not saying we are going down one particular route — M&A, liftout, find someone to build internally — all are things we're looking at, at the moment.
Have you found investment silver linings in any of the crises or disasters around the world this year? No, not as yet. I would say that the situation in Japan is one that is much larger than your standard stock market response would give you. I think the structural damage and the (Bank of Japan) response to it, it may well be that Japan disappoints for a little longer and a little more significantly than people might have realized.
We're finding more opportunities in a place where it is very unfashionable to discuss — large-cap financials, large, reliable banks that are finally coming out of the (crisis) and starting to see (growth) but are still at very, very cheap multiples.
What will sustain equity allocations as pension funds move to lower investment risk? I often go back to the very basics, and what will sustain equities is that generically they may well be a safer security than (bonds issued by) governments. You look at governments the world over and look at their state of indebtedness and ask yourself how are they ever going to get back to paying that off. Then you look at quality, large-cap companies, and you see their spreads are trading inside governments. In a very, very difficult world, it may be that the security of a piece of paper from a (U.K.) or U.S. corporation may in fact be a better risk than government paper.
Can you explain to Americans what's interesting about cricket? I do like baseball, too, but there are a number of differences. First and foremost is that (hitting is more frequent in cricket than in baseball).
(Also,) it's not tribal the way baseball is. You don't root for your team. It's not patriotic, you don't wear your colors. ... Historically, the match is five days (long), and you know it's on, so you just drop in to catch the score, or sort of live with it a bit. And what is beautiful about it is that if it does get close at the end, as in any game, the tension is there. There's nothing quite like it.