Nature vs Nurture: What makes a great fund manager?

John Husselbee Liontrust Husslebee

What makes a great and successful fund manager? At first glance, this might appear an easy question to answer. Performance will be cited as the evidence and most people will point to intelligence, knowledge, stock selection, investment process and philosophy along with hard work, timing and, of course, an element of luck.

While all these characteristics and elements are important, for me they do not go far enough in evaluating what separates the elite group of leading fund managers from the rest. Do fund managers achieve greatness through the talent they are born with or do they progress through self-development, coaching and their environment?

To answer these questions, we must discover the managers’ genuine persona rather than just the aspects of their personality they display at work, which means getting past their psychological suit of armour. This is just one of the many things I have either learnt or has been confirmed to me over the past year writing this column.

So what is the DNA of successful fund managers? The first thing to note is that it is not as simple as attributing greatness to either just nature or nurture. As Stewart Cowley, who was formerly head of fixed income at Old Mutual, says: “I don’t think you can teach everything it is to be a top-ranked manager. You can teach technical details but the ability to see patterns and gut instinct have to be present.”

Let’s get luck out of the way first. And I don’t mean luck in terms of beating the market. I am referring to the chances one gets in life to make the most of the talent we have been given. Nick Kirrage of Schroders points out that we all need “to benefit from some serendipity in the sense that your boss notices or that the right opportunity opens up at the right time”.

The first personality trait we have identified in leading fund managers is passion. Managers cannot exhibit unconstrained passion, however, as it needs to be harnessed to help them manage money. Kirrage says he has learnt that when he is naturally most fearful about market events, it may be an opportunity to buy and he should meticulously question his assumptions when he feels particularly bullish.

Curiosity and open-mindedness along with patience, courage, ambition and a great desire to win are key characteristics to be able to discover and take advantage of investment opportunities and thrive through the boom and bust cycle of markets. It is unsurprising, therefore, that successful fund managers tend to have a broad range of interests and are often generalists rather than specialists.

At the same time, natural cynicism and continually questioning the market are also important. Nick Williams of Barings points to the fact that if people are getting over-excited about a company or sector and he cannot understand why, he will typically stay away.

Another theme to emerge has been the varied background of the fund managers we have interviewed. Most of our managers had little idea what a fund manager was or did before starting to work in the City and they have a diverse range of degrees including aeronautical engineering, classics and metallurgy.

This has been changing, however, with today’s entrants having a more clearly defined career path. Williams says: “What I see from the many CVs that come across my desk today are typically similar high-level financial and economic qualifications and many seem to have been part of investment clubs since their earliest years in preparation for a City career. But beyond being able to read a balance sheet, which is actually fairly rules based, what is not always evident is the curiosity, ambition, competitive streak and basic capacity for hard work that I feel are necessary to be a successful fund manager.”

Richard Buxton of Old Mutual wonders whether the pendulum has swung too far towards an emphasis on the science of analysis. He suspects an arts graduate would struggle to get a job interview without having had an industry internship or been a member of an investment club.

Sally Macdonald of Marlborough, however, says each new generation that enters the investment industry thinks differently and behaves differently, perhaps most noticeably through their adoption of technology.

Despite their highly successful careers, many of our interviewees also talk of the weight of responsibility and pressure of managing other people’s money. Stephen Harker of GLG says: “When you’re losing, confidence drains away and self-doubt creeps in.”

Richard Pease of Crux adds: “It’s human nature that when you’re doing badly you’re less confident, but that’s when you’ve got to do the most marketing and reassuring.”

These last two quotes reveal another characteristic of leading fund managers – humility – and add to the insight we have started to gain into the DNA of successful fund managers through our interviews over the past year. We look forward to continuing to work towards providing a comprehensive answer to the key question: what makes a great fund manager?