Pandemic progress comes with a price on cultural issues

Last year's triumph for asset owners and money managers — overcoming the coronavirus threat to their business models with the help of videoconferencing apps — has come with its own set of challenges for those organizations' human elements.

The pandemic-enforced shift to a work-from-home environment last year has been a roaring success, industry executives say.

But that success has introduced cultural minefields that will need to be defused.

COVID-19 taught the industry that it can work very effectively in a virtual environment, but how to mentor and develop young professionals in that environment while building and maintaining a firm's culture will be major concerns going forward, said Erik L. Knutzen, New York-based managing director and chief investment officer of multiasset class with Neuberger Berman Group LLC.

If there's a danger, "it's that our reservoir of cultural connectivity may be getting low, and you can only refresh that so much via Zoom," Mr. Knutzen said.

Similar concerns appear to be haunting asset owners now.

With eight new hires at the Massachusetts Pension Reserves Investment Management board over the past year and the challenges of effectively mentoring them in a remote environment, "I'm particularly worried about the culture of our firm" now, said Michael G. Trotsky, executive director and CIO of the $80 billion Boston-based fund.

"I don't know how we're going to evolve," Mr. Trotsky said. "I want to be in-person and I hope to be in-person for most of the staff as soon as possible but post-COVID, I'm not sure what it's going to look like."

It's more than an academic question, investors say.

"It's a really important topic for us because I do think that that's our comparative advantage" — worth many basis points per annum to returns, said Sue Brake, CIO of the Future Fund, the Melbourne-based sovereign wealth fund overseeing A$170.9 billion ($130.9 billion) as of Dec. 31.

The Future Fund's strong workplace culture "is not only nice to have. It's helping us achieve our mandate in a very tangible way," she said.

Industry veterans say the chapter of the coronavirus story where money managers, asset owners and investment consultants overcame potentially crippling obstacles to their businesses and made it look easy is now largely written, leaving the thornier issues posed by a remote-working environment to be hammered out.

Coming into the second quarter of 2020, a money manager's aim was simply to "do what you were meant to do" day to day — responding to markets, writing reports, communicating with clients, and by the third quarter, the bulk of the industry was doing that really well, said Subash Pillai, Singapore-based managing director and head of client investment solutions for Asia-Pacific with Franklin Templeton Investments.

Now "the focus becomes well, what are we trying to do? This is a different environment, what do we need to do differently?" Mr. Pillai said. "From the fourth quarter and into this quarter, that's where we're starting to see the real thinking going on."

Industry veterans say the benefits of virtual client service and due diligence, together with the better work-life balance offered by flexible remote-working arrangements, have been so pronounced that few expect life to return to pre-COVID norms even after vaccination programs now underway succeed in offering protection globally.

Asia — and in particular China, where some companies have already brought employees back to their offices, and where meetings and even some conferences have resumed — will offer the first clues as to what a post-pandemic world could look like, said Aaron Costello, Beijing-based regional head for Asia with investment consultant Cambridge Associates LLC.

"Clearly the ability to have videoconferences and some level of remote working is here to stay," Mr. Costello said. The only question is "how much," he said.

For Tim Campbell, CIO and co-founder of Singapore-based hedge fund Longlead Capital Partners, the answer — when it comes to due diligence-related travel — is that only 20% to 30% of pre-COVID levels are likely to resume after herd immunity is achieved.

"Travel globally is 100% being rethought," Mr. Campbell said. "In the past, salespeople had to hop on a plane to close a deal. Guess what? You can close on Zoom … you can do 90% of the legwork on Zoom and then maybe it's only one face to face whereas before it might have been four," he said.

Meanwhile, although a number of industry veterans say the inability to conduct operational due diligence on new managers will leave asset owners focusing allocations on managers they already work with or know well, some insist that institutional investors are growing more comfortable with virtual due diligence.

"We're already seeing" asset owners willing to consider strategies run by portfolio managers they've never met before, noted Matt Gaden, Sydney-based head of Australia for Janus Henderson Investors. "We're on the cusp of two global searches with large pension schemes where … the process and the decision will have been 100% made virtually," he said.

He declined to identify the pension funds.

Still, many observers concede there's room to bolster the industry's fledgling reliance on technology to better connect the world going forward.

Videoconferencing apps give institutional investors scope to search out and vet opportunities that would have been too remote to consider otherwise but doing so successfully will depend greatly on "personal chemistry," said Gordon L. Clark, professorial fellow at Oxford University and co-director of the university's Smith School of Enterprise and the Environment.

The answer, he said, could entail "investing in the social glue that makes the medium … an efficient medium through which to make decisions" — for example having members on each side of a group call "virtually get together personally."

Chris Trevillyan, director of investment strategy at Melbourne-based investment consultant Frontier Advisors LLC, said his firm's leadership has worked to boost contact and connections among colleagues — everything from regular catch-ups with small groups of people from different teams to multiple firmwide meetings.

It's definitely a challenge and "something that we are worried about, but it's more thinking about how we can do it better" in the future, Mr. Trevillyan said.

"It may just be organizing certain events on certain days where everyone does come together, does all their brainstorming and all their interaction ... and then goes away and does individual work for other periods," he Mr. Trevillyan said.

Industry veterans say they're aware that there's considerable value for organizations simply from having their employees working in the same office and that those benefits will be harder to come by in an environment where — for example — the typical employee could be working two or three days a week from home.

Franklin Templeton's Mr. Pillai said he's acutely aware of the challenges facing younger colleagues because "they don't just learn from instruction and direct feedback. They learn from observation," something he called a key to his professional development early in his 30-year career in the industry.

"No one taught me per se but I learned a lot by watching," or listening when he was at his desk and two more senior people started talking, Mr. Pillai said.

He said over the past year he has taken to inviting colleagues who've been at the firm only one or two years to join Zoom calls even if they can't be expected to add much to the conversation. "You want them to learn from the conversation that they're part of," he said.

Future Fund's Ms. Brake said she's very focused on those cultural issues as well, in keeping with the fund's long-standing "one team, one portfolio" approach of judging each potential investment vis-à-vis the full range of assets in the portfolio.

"You've gone from a whole lot of people bumping into each other in an organic and natural setting to these many short Zoom or Teams meetings that just don't have the same value attached to them," Ms. Brake said.

She said the culture she inherited when she was promoted to CIO last year is "remarkably resilient." Even so Ms. Brake expressed concern that the current remote environment could chip away at that resilience.

"We are doing a piece of work about this. We call it 'joined-up-edness,' because it's so important to us," said Ms. Brake. "How do we not only stop (that cultural) bank balance from eroding but get really good at it because this environment is here to stay in some hybrid form," she said.

Mr. Pillai said if you fast-forward "our world now five years," will that cohort of professionals aged 22 to 27 "find a way for their own innovation to come out? And how good will we be as an organization to harness their thinking? Those are the things that we would need to think about in that new world."

"As a student of this (industry), I don't like that I've found the last year fascinating but I have," Mr. Pillai said. "I like a world without a pandemic … but I'd like a better world after that, and a better workplace after that, so … here's hoping we can build that."