Should fund managers be hiring more ‘disruptive talents’?

There’s growing interest in the role that disruptive talents have in financial performance. 

Many fund management teams use the ‘devil’s advocate’ argument and call on a contrarian investor to assist with team-based decision making. The thought being that continued success is unlikely to breed from managers always agreeing with each other. The danger of “group-think” is perceived as one of the most serious risks to performance. 

However, we also know there is a risk to hiring so-called ‘disruptive’ talents. There is the risk, for example, that hiring an individual with an extraordinary track record might disturb a working environment: ‘disruptive talents’ are nonconformist and can be notoriously difficult to work with.

Research shows that stable teams tend to perform better than teams that have members who rotate constantly. Stability can therefore be important as team members learn to adapt to the strengths and weaknesses of each member and grow to appreciate shared goals. 

Peter Evans, portfolio manager coach at Oxygen Coaching, also noted that a ‘star’s’ success may be the result of luck rather than skill. Fund managers tend to be preoccupied with track records but Evans says track record is not a good measure of skill or ability to consistently add value. So how to balance these contrasting perspectives about individual opinions and team dynamics? 

There is emerging evidence of the balance to be struck. Research indicates that diversity of thought and personality is positively correlated with high performance in teams with broad and complex decision needs. Research at Saberr indicates that it’s also important that teams remain aligned on values. We have found that if you have a group and there is no alignment of basic values it can lead to lower performance. 

Michael Mauboussin, head of global financial strategies at Credit Suisse, came to a similar conclusion in his analysis of investment committees: “Ideally, you want a team to have high cognitive diversity and low value diversity. High cognitive diversity ensures that the team has the requisite tools and information to solve problems effectively, and low value diversity means the team is unified in its purpose.” 

Could this be the best of both worlds? Strong enough values alignment in a team so that you can have tough, heated debate without the process descending into politics and angry debate that actually isn’t productive? If so it could represent a significant step forward in designing high performing teams. In our view this is a massively under-explored area of understanding performance: team dynamics. 

This leads to another interesting question. If diversity of thought or cognitive diversity is a good thing, does that necessarily mean demographic (or social category) diversity is required? Research has shown that women made better risk managers given they are less prone to risky behaviour and to react to short-term volatility. 

Mauboussin strikes a note of caution to a simplistic view that balancing the gender gap will always have the desired impact: He says: “There is some evidence that social category (or demographic) diversity is related to cognitive diversity, but they are clearly not the same”. 

So what can fund managers do to make sure they are understanding these pressures and getting the balancing act right? First, be aware of the pressures that may be building if you don’t have demographic diversity in your team. Second, make an effort to understand whether your team are aligned on values and unified in their purpose. 

As it stands, a lot of hiring and team design decisions are largely accidental or based on gut-feel. But selecting hires based on gut-feel alone, simply because that is what you’ve always done, merely ingrains behavioural biases and repeated mistakes into the process. 

Companies have long been using data to measure individual performance, but when hiring new talent, it needs to be used to measure each individual within the context of their team. This analysis is becoming available. Analytics tools that measure the alignment of values among team members help to provide companies with an understanding of the likely impact of a new recruit on the overall performance of a team.

Fund management companies are high performance environments and in order to repeat successful outcomes we need to understand the complexities that lead to outcomes. These can be illuminated by looking at team dynamics.

Fund managers are, by nature of their profession, data-oriented people, so it only makes sense that they start applying data to the context of designing teams and hiring talent. Risk management needs to be taken seriously not only in investment decisions, but also team-making decision.

Tom Marsden is chief executive of analysis company Saberr.