Thinking - Time For Fund Managers To Come Out Of The Closet
Market Conditions Require A Different Approach To Investment
In the past, fund managers could rely on market momentum to be profitable. But with prospects for growth in equities limited, fund managers can no longer rely on “closet indexing” to create value for their clients.
The maxim of buy, hold and sell is not appropriate in current market conditions. Fund managers must now buy and build value before selling.
The rules of the game have changed both because of market conditions and developments in corporate governance, which require more active involvement from institutional investors. These changes mean fund managers will need to adopt new approaches to managing their investments.
Their task is by no means easy.
Research consistently shows there is a 7 in 10 chance that strategies fail to achieve their objectives, often not even reaching the point of execution. The costs of failure have to be carried by successful initiatives.
A study* of UK IPOs concluded “firms showed a decline in the post-issue operating performance in the first three years of their going public, both before and after industry adjustment”. In other words, the strategies and plans were optimistic and mobilisation of strategy was ineffective.
Fund managers have always needed to pay particular attention to the quality of leaders and managers. But they should particularly look at the winning behaviours that create and maintain viability.
Paul Oliver, formerly Director of Strategy and Development at BT Wholesale, is the Managing Director of Conduco Consulting, which provides training and facilitation services to companies engaged in strategic change. paul.oliver@conduco-consulting.com
*”The Operating Performance of Initial Public Offerings: The UK Experience” Arif Khurshed, Manchester School of Accounting and Finance, Stefano Paleari, and Silvio Vismara, Universita degli Studi Bergamo