“What have you got there?” I asked the chairman of the impregnably-sized investment company Second Coming Asset Management, as we met for a few pints of Reasonably Smug About Last Week’s Architecturally Crumbling Jokes at The Still Waiting For My Open Letter. “I found it at the bottom of a drawer,” replied the chairman, handing me a piece of paper.
“It’s the old Director’s Exam I took back in … crumbs, must have been the early seventies,” he continued. “But there’s no such exam,” I replied. “Not in so many words,” the chairman conceded. “It’s the test my father made me sit before he allowed me to take the reins of the family business – and, the way things are, it would be no bad thing if such an exam were made compulsory these days.”
“No argument there,” I agreed although, just to fill in the gaps, I should probably point out the chairman also believes it should be compulsory for people to pass an appropriate exam should they wish to become a parent or vote. “So let’s see what sort of issues your father thought were vital to running a fund business.
“‘Question one: Mindful of the criticism investment companies traditionally receive when they launch a fund at the top of the market, you look to raise money for a closed-ended trust at the other end of the economic cycle but discover most investors were bluffing about any interest and, despite extending the deadline, you fall short of an already modest target.
“‘Do you: A) Have the courage of your convictions and make up internally the amount you say you fell just short of? B) Suspect your definition of ‘just short of’ may be different from everyone else’s and pull the launch? C) Make a mental note never to worry about outside criticism ever again and always launch at the top of the market?’
“Well, I know it’s not the third of those answers.”
“Nonsense,” snorted the chairman. “Of course it is. Have you no concept of the management fees one can pocket, thanks to investors’ short memories and inertia, if you’re prepared to ride out a week or two of bad press?” “Moving swiftly on,” I said, a little taken aback.
“‘Two of your managers run 90% of your business using processes inextricably linked to their names but one day decide they fancy a change of scenery and you have to be thinking they’ll eventually set up somewhere else. What do you do?’ Ah, I see this one’s more of an essay question than multiple-choice.”
“More of a logic problem in fact,” said the chairman.
“After all, how do you find high-profile enough replacements who are so free of ego they’re prepared to run money using somebody else’s system? Or on the basis that, in all likelihood, fans of said system will follow The Real Thing rather than stick with some generic cola, do you junk the system and lose half your mandates anyway?”
“Your father sounds like an interesting man,” I said noncommittally. “So what’s the answer?” “Well, obviously you cheat,” said the chairman. “No, perhaps that’s too strong a word. You … er … confuse everybody by changing the rules. You sound the trumpets, sprinkle some fairy dust and announce you’ve appointed their natural successors – their existing colleagues.
“Doesn’t matter whether they’ve been running a fraction of the money or completely different mandates or whatever – people won’t be able to decide whether this is a good plan or a bad plan and you’ve given yourself the best possible chance of hanging on to a chunk of the cash.” “Genius,” I said. “Or perhaps not.” “That’s rather my point,” shrugged the chairman.
“Hey, this last question’s pretty topical,” I said. “‘You run an investment house but nobody’s investing as the global economy was last seen in a handcart being pushed by a red bloke with horns and cloven hooves. What do you do?’ You must have written pages on this.” “Ten words,” said the chairman. “I think they were ‘Sit tight. Don’t do anything silly. Bear markets always end.’” “And that’s the right answer, is it?” I asked. “Must be,” shrugged the chairman. “I mean, who’s the chairman?”