If you asked most people involved in manager research what they enjoyed about the job, invariably the answer would be the face-to-face meetings with fund managers. Going into their offices, being able to drill down into how someone – who is at the top of their game – does their job, thinks, learns from mistakes; to understand what motivates them and a whole lot more besides, is a real privilege of the role.
So in this COVID-19 lockdown era, a big change in the way we work has been forced upon us, but the work continues nevertheless – via Video Calls. If you want to know the strengths and weaknesses of Skype, Zoom, Teams, Webex, BlueJeans, StarLeaf and various other systems, ask someone in manager research! We’ve used them all, and we’ve seen the insides of people’s houses that we never imagined we would. We’ve had kids invade the shot, and had people frozen on screen with very amusing facial expressions! We’ve also started to notice a trend in dodgy corporate logos as VC backgrounds too..!
But can we build the same level of conviction virtually? The answer is probably no, but it’s not quite as bad as we feared. It’s a little more efficient, you can get through more in a shorter space of time, and we don’t have the travel time we used to, which can instead be used by meeting more people, or further desk-based quantitative work which we’re able to do the same as always. The big stumbling block is not being able to conduct the on-site visit, which we always do before rating, or re-rating the manager. This tyre kicking exercise is crucial to understand an organisation and verify with our own eyes they are who they say they are.
The implication of this is that it will be harder for newer entrants to get ratings until some normality resumes. In a theoretical, all things-being-equal choice between a manager we know well, have visited on numerous occasions, and someone new to us, the latter now has a hurdle to jump over that wasn’t there pre-covid. So far this hasn’t proven to be a problem, but the longer offices are closed, the more this situation will become reality.
So as a manager research team we put our heads together to see if we could get over the hurdle. What was it about an on-site visit that was crucial to us gaining conviction in a manager (or not)? It broke down into 3 main areas: Hygiene (are they really who they say the are?), deeper cultural insight (doing the floor walk, meeting non-investment people) and deeper due diligence (systems demos, analyst notes/models, joining meetings etc.). Whilst not all of this can be replicated virtually, enough can, and we will probably need to rely more on reference checks from other investors than we normally do, but we do believe that we can rate managers without physically being in the office.
Aside from the on-site problem the other change in these first few months has been the balance between monitoring and new research. The manager research job is split roughly equally between monitoring existing holdings, and researching new ideas. Those new ideas could get ratings, or they could just provide the context and benchmark for existing holdings.
In a crisis period however, you tend to skew much more to monitoring. How are our managers performing? Is this in line with our expectations? What changes are being made to the portfolios and are they sticking to their process? A crisis is always a time of great change and stress and not everyone copes in the same way. Fund managers are human too, and we need monitor them closely in such conditions, and reassure our clients that their investments are still the right ones. We’re only now just turning back to new research after a hectic few months.
A very unusual and stressful time for clients, consultants and fund managers alike, but the most important thing is everyone’s safety in this unprecedented time, and small changes to our working patterns are a very acceptable price to pay to achieve that safety. We can do our jobs pretty well from home, and so we will stay here until it is safe to return.