The issue of culture within money management firms is increasingly on the radar of investment consultants that are preparing to walk away from highly rated managers based on their findings.
So important is the culture of a manager that Willis Towers Watson's manager research team this year launched a separate assessment within its due diligence process to consider culture for high-conviction-rated money managers.
The assessment, which has been used on about 40 firms so far, is implemented in the final stage of the due diligence process and has already led to the consultant rejecting two managers it otherwise would have happily endorsed.
While a manager's culture had always been part of the process, it was never a separate factor in making decisions, said Luba Nikulina, London-based global head of manager research at the firm.
"We could go away and assess the quality of investment professionals and dynamics in the team, but not the culture per se. It would pop up every now and then where our researchers would make comments, but there was no consistency there," she said.
The firm took the lead from the Thinking Ahead Institute, a WTW offshoot and a not-for-profit investment research organization, which "really helped us … to try and bring it all together and create the framework where we can go and use it as a separate assessment tool," Ms. Nikulina said.
Assessing the culture of a money manager is so important and at the same time tricky "because it is probably the ultimate manifest- ation of everything related to the qualitative assessment, and so subjective." Yet it did not get the attention it should have in the past, she said.
And so Willis Towers Watson worked with the institute to come up with a framework that was introduced as a requirement for the manager research team in assessment of its high-conviction ratings for money managers. It comprises a set of 60 questions asked at the end of the due diligence process. Originally, four members of the WTW team were involved in the questioning, but "now there will be two or three people in each asset class. You need experience to be able to read some subtle signals in discussing such a soft subject," Ms. Nikulina said.
Ms. Nikulina declined to identify the two firms rejected this year, but said one was because of concerns about leadership of the organization, with researchers unable to get comfortable with the choice.
Questions asked include:
- Why do you do what you do?
- What other value besides investment returns do you provide?
- Who is the keeper of the culture?
- How do you go about building a relationship based on trust?
- How well do your clients understand what you do?