Seasoned and veteran fund managers might once have balked at the idea they would need coaching to become the best in their profession. But in recent years the concept has entered the consciousness of the asset management world.
Coaching is one area Hermes Investment Management is going to be focusing on in 2018, according to investment head Eoin Murray.
He said the firm’s plans are driven by a desire to create an environment where its investment managers continue to thrive.
In a nutshell, behavioural psychologists are being brought in to work through portfolio investment decision analytics to help develop the behaviours and traits of the portfolio managers.
Mr Murray said the company has been using Inalytics data and analysis for about six years.
It has “upped the ante” over the last couple of months in terms of looking at additional software and analytics and working with a behavioural psychologist.
Hermes currently has a range of analytics and data providing context on both upside and downside portfolio movements captured over different time horizons, the success of buys and sells, and a skill metric around timing. It is in the process of trialling four additional analytics tools.
Mr Murray added: “If you think of fund managers as the financial equivalent of high performance athletes; let’s assume they are good at their job and the challenge is to keep them at that fever pitch where they are operating day in day out; that comes down to the support you give them.
“We have lots of analytics around different elements of decision making within an investment process and we can link that back to behavioural traits; like regrets or overconfidence.
“[A behavioural psychologist] will workwith our fund managers to iron out these behavioural traits. You can never remove them all together but we can certainly help them to emphasise what they are good at and avoid those things they are no good at.”
The concept of behavioural analytics in the investment world is not new, although it is not know how widely it is embedded into the sector. It typically looks at the psychology of financial decision-making. And its popularity has been growing over the last 20 years specifically because of the observation that investors rarely behave according to the assumptions made in traditional finance theory.
A report from Vanguard said traditional finance theory assumes that investors have little difficulty making financial decisions and are well-informed, careful and consistent. Additionally, investors are not confused by how information is presented to them and are not swayed by their emotions.
But in reality, their decisions are influenced by their own psychology, emotions and personal experience, meaning that they can experience extremes; from optimism to sheer panic.
Mr Murray added: “It’s all about providing our teams with as much support and help as we can in order to give the portfolio managers the best chance of continuing to provide excellent, long-term, consistent risk-adjusted returns.