Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
TEAMS, TIME & ALIGNMENT
S e a n M . K e n n e y, C FAM a n a g i n g D i r e c t o r
37726
FOR INSTITUTIONAL AND PROFESSIONAL USE ONLY.MFS Institutional Advisors, Inc.The views expressed in this presentation are those of the speaker and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations or as an indication of trading intent on behalf of any other MFS investment product. No forecasts can be guaranteed.®
R o b e r t J . M a r r e nM a n a g i n g D i r e c t o r
ALIGNMENTDeveloping long-term a governance framework
TIMEYour greatest asset can work against you
TEAMSFactors that drive team success
PURSUING INVESTMENT EXCELLENCE
2
TEAMS
"No matter how brilliant your mind or strategy, if you are playing a solo game, you'll always lose out to a team"
- Reid Hoffman
PREDICTING TEAM PERFORMANCE
FactorThe average & maximum intelligence of team members did not explain group performance
Source:AnitaWilliamsWoolley et al. Science 330, 686 (2010)
The
4
DRIVERS OF COLLECTIVE INTELLIGENCE
When they should be focused here
Let's explore each of these in some more detail
NOT SIGNIFICANT• Cohesion• Motivation / Incentives• Satisfaction
SIGNIFICANT• Conversation Turn Taking• Social Intelligence• Diversity
Most organizations focus here
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY5
FACTOR #1: CONVERSATION TURN TAKING
The pattern of information flow is found to be the largest factor in predicting team performance.
The environment for sharing opinions and ideas openly is critical to collective intelligenceSource: Social Physics, Petland 2014FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
6
FACTOR #1: CONVERSATION TURN TAKING
Team A Team Bvs.
Team B is likely to have a higher collective intelligence than Team AFOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
7
FACTOR #2: SOCIAL INTELLIGENCE
75% to 96% of success in life and work is achieved through Emotional Intelligence, Creative Intelligence, and other Learnable Qualities.
Team members with high social EQ increases collective intelligenceSource: Resource Management of Boston, 2014FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY
8
FACTOR #3: DIVERSITY
Diverse skills and expertise
Unified purpose and direction
HIGHCOGNITIVEDIVERSITYLOW
VALUEDIVERSITY
Diversity alone only offers the potential for improved team performanceSource: Mauboussin, Michael & Callahan, Dan (2014), "Building an Effective Team: How to Manage a Team to Make Good Decisions." Credit Suisse (www.credit-suisse.com)FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY 9
FACTOR #3: DIVERSITY
Diversity creates value, but it is only captured through effective transfer
• Contribution of skill / information
FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY10
• Ability of people to effectively communicate
• The environment the team is operating within
INFORMATION PROCESSING
INFORMATION TRANSFER
BRINGING THE THREE FACTORS TOGETHERTeam performance depends on…
Social SensitivityTrue ability to listenCognitive Diversity
Provides the best inputs
Pattern of Information FlowFreedom and security to sharedifferent views
Building effective teams requires attention to all three factorsSource: Woolley, A. Williams, Christopher, F. Chabris, Alex Pentland, Nada Hashimi, and Thomas W. Malone, "Evidence for a CollectiveIntelligence Factor in the Performance of Human Groups," Science, Vol. 330, October 29, 2010, 686–688.FOR INSTITUTIONAL AND INVESTMENT PROFESSIONAL USE ONLY 11
TIME
"Unless carefully managed, group dynamics frequently thwart contrarian activities and impose shorter than optimal time horizons."
-David Swensen, 2009"Pioneering Portfolio Management: An Unconventional Approach to Portfolio Management"
Increasing complexity
Fixed, 12%
PrivateEquity,12%
Real Estate, 13%
Non USEquity,22%
US Small Cap, 8%
US Large Cap, 33%
YOUR JOB IS GETTING HARDER
Cash, 27%
Fixed, 73%
Private Equity, 4% Real Estate,
5%
Non-US Equity, 14%
US Small Cap, 5%
US Large Cap, 20%
Fixed, 52%
1995Expected return: 7.5%
Standard Deviation: 6.0%
2005Expected return: 7.5%
Standard Deviation: 8.9%
2015Expected return: 7.5%
Standard Deviation: 17.2%
Increasing risk
Investors need 3x the amount of risk to get the same returnSource: Callan Associates Inc. 13
MEASUREMENT OF SKILL
Investment decisions continue to be anchored to 1-3 year timeframes[Time Tolerance] How long are you willing to tolerate the underperformance of external asset managers before initiating the search for a replacement manager[Board Demand] What time frame are you given within your organization to generate a positive return (e.g. alpha) for your assets?
Time Tolerance Board Demand
10-years
7-years
5-years
3-years
1-year
Avg 3.1 years
Results for North America, n=100 14
Avg 3.6 years
FULL MARKET CYCLE
Bear market Bull market
A full market cycle is peak to peak or trough to trough
6.9 years (15%)
8.6 years (20%)
Market cycle
Market cycle
Peak
TroughTrough
Peak
Bull market Bull marketBear market
Source: "Defining a Market Cycle," Manning & Napier. 15
Full market cycle
ACTIVE MANAGEMENT
MEASURING RESULTS
1/3/5 years
THE DELEGATION OF DECISIONS
Committee
Pension: 20-30 years E/F/SWF: infinite
Principal/Agent friction can be caused by misalignment16
Asset Owners
ASSET ALLOCATION DECISIONS
Internal / ExternalInvestment Manager
Board / Investment
THE STRONG MAY FALL...
Top quartile
Second quartile
Third quartile
Bottom quartile
22%
28%
25%
25%
17%
24%
47%
12%
32%
28%
14%
26%
21%
32%
22%
25%
Oct-1990 –Sep - 1995
Buyer's remorse is all too common with investment committeesSource: eVestment Alliance. Data Analysis: MFS Investment ManagementThe universe includes 456 strategies in the eVestment Database with a Universe included in All US Equity and an inception date on or before 09/30/1990. Rankings include both surviving investments and those liquidated and/or merged prior to the end of the full calculation period (10/1/1990-09/30/2015). Performance is utilized for periods where it is available. Performance is calculated gross of fees. The entire universe of funds is analyzed during each five year period. 17
Oct-2005 –Sep-2010
Oct-2000 –Sep-2005
Oct -1995 –Sep -2000
Oct-2010 –Sep-2015
...WHILE THE WEAK MAY RISE
Top quartile
Second quartile
Third quartile
Bottom quartile
19%
9%
50%
23%
18%
30%
19%
35%
30%
21%
32%
27%
23% 30% 17%21%
Oct-1990 –Sep-1995
Oct-2005 –Sep-2010
Oct-2000 –Sep-2005
Oct -1995 –Sep -2000
Oct-2010 –Sep-2015
Performance may not be predictive of future successSource: eVestment Alliance. Data Analysis: MFS Investment ManagementThe universe includes 456 strategies in the eVestment Database with a Universe included in All US Equity and an inception date on or before 09/30/1990. Rankings include both surviving investments and those liquidated and/or merged prior to the end of the full calculation period (10/1/1990-09/30/2015). Performance is utilized for periods where it is available. Performance is calculated gross of fees. The entire universe of funds is analyzed during each five year period. 18
SKILL TAKES TIME
Warren Buffett's Berkshire Hathaway lagged the S&P500 in more than one-third of rolling three-year periods
in the 25 years since 1987*
The world's best will underperform in shorter time periods19
*ʺShortfall Risk: TheGrandUnifying Theory for Investments?ʺMarkBaumgartner, NMSExchange,November 2012.
ALIGNMENT
"Long-horizon investors have an edge… Unfortunately, the two biggest mistakes of long-horizon investors —procyclical investments and misalignments between asset owners and managers — negate the long-
horizon advantage."
- Ang and Kjaer, 2011"Investing for the Long-Run"
Communication to stakeholders should emphasize long-term return objectives
Goal Setting MeasurementPartnerships
ALIGNMENTStrengthening Governance and Managing Agency Risk
21
Communication to stakeholders should emphasize long-term return objectives
WRAP-UP
Teams
Commit to improving collective intelligence &
decision making
Commit to using time as an advantage
Commit to a develop alignment through your
governance and partnerships
Time
22
Alignment
Improving investment outcomes through strong teams aligned around a long-term framework
MFS INVESTMENT STUDY METHODOLOGIES
MFS GLOBAL INVESTMENT TIME HORIZON STUDY
Methodology: CoreData Research, an independent third-party provider, conducted a study among institutional investors (including private or public DC/DB, endowments/foundations, and gov't entities) in North America, Europe, and Asia Pacific on behalf of MFS. MFS was not identified as the sponsor of the study. To qualify, participants had to work at an institution with at least $20MM in assets. Other criteria included use of active strategies, proportion of assets managed externally, and involvement in selecting/hiring asset managers/asset allocation.
Data Collection Period: October – November, 2015Total (n=350); North America (n=100), Europe (n=100), Asia Pacific (n=150)
THANK YOU
Unless otherwise indicated, logos and product and service names are trademarks of MFS® and its affiliates and may be registered in certain countries. Issued in the United States by MFS Institutional Advisors, Inc. ("MFSI") and MFS Investment Management.