Firing lineJan 24 2018

Firing Line: Hermes' Eoin Murray

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Firing Line: Hermes' Eoin Murray

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.

“There’s nothing in particular that has changed in the investment climate, but I think it makes sense for all firms – in the investment industry and beyond – to seek continual improvements in what we deliver. Investment skills need to evolve to match changes in the market, as no two events are ever exactly the same.”

Initiatives like the investment coaching programme are part of Mr Murray’s desire to help his teams face future market challenges. He believes education plays a significant role in strengthening the skills of financial services professionals generally.

Another issue close to Mr Murray’s heart is long-term investing, something he said many in the market espouse but it is unclear how many actually practice it.

This is often because a lot of projects and companies get judged on their payback over a very short-term horizon which causes some to be rejected, which otherwise in the long-term, would be beneficial.

Mr Murray said: “We need to allow firms the wherewithal to have the long-term perspective and it is our job as a capital allocator to do that. I do think it requires a special relationship between the asset owner and asset manager and a great deal of trust.

“Communication has to be massive at the beginning and there has to be a real understanding of ‘let’s not worry about the six-month, one-year or even three-year outcome. Let’s keep our eyes focused on seven to 10 years’.

“Of course it is very difficult. But I think, the more the asset owner and manager have worked together to build that trust and there’s a real understanding of the investment process, the more patient the asset owner will be in keeping the faith.”

Ima Jackson-Obot is features writer at Financial Adviser

 

Eoin Murray's career highlights

2015 - present: Head of investment, Hermes Investment Management

2012-2014: Fund manager, GSA Capital Partners

2008-2013: Partner, chief executive, Callanish Capital Partners LLP

2004-2008: Chief investment officer, Old Mutual