Buffeted by growing trade winds of change, the asset management industry is steering a new course by reshaping its organizational culture to focus on people, purpose and performance. While asset management firms may once have opted to ignore culture, throwing up their hands when it came to creating a distinct culture or larger purpose, today’s organizations recognize that organizational culture ranks right alongside fund performance or financial metrics in terms of importance.
Faced with major disruptions ranging from a data, technology and artificial intelligence evolution to strategic relationship models and new fee structures and pressures, asset management firms are focusing on improving key elements of culture to better innovate and compete. For an industry that’s been built around detailed quantitative measurements, focusing on culture, often perceived as a soft, unmeasurable concept, is a challenging shift.
Many firms are so hard-wired to the use of precise measurement that they omit culture altogether in their strategy treating it as a non-controllable item. Organizations that ignore culture do so at their own peril, especially as they confront growth and other industry changes.
According to the Thinking Ahead Institute research paper, “The asset manager of tomorrow
,” only a small percentage of asset managers have measured and actively managed their own culture. However, this is likely to change as asset management firms recognize that a greater purpose and stronger culture are getting better rewarded.
“The culture of making investments just to make money is changing. Investors are increasingly looking at companies with cultures founded on a strong environmental, social and governance (ESG) focus."
National Asset Management Sector Leader, Audit Partner
Grant Thornton LLP
, Grant Thornton National Asset Management Sector Leader, noted “The culture of making investments just to make money is changing. Investors are increasingly looking at companies with cultures founded on a strong environmental, social and governance (ESG) focus. Depending on your beliefs, it could effectively change where you invest and where you work.”
He added it is a challenge for the industry to facilitate a culture shift amidst this kind of constant change. “A lot of change is happening within the industry,” he said. “Asset managers are trying to forecast changes to their business, making small or at times large adjustments as needed.”
Patanella explained, “Deutsche Bank, for example, recently cut thousands of employees when it opted to exit from certain equity businesses, forcing it to realign its view of what the new world in asset management will look like. The culture you have really becomes challenging when you have to retrain and retool employees in order to keep them engaged through change.”
In order to effectively engage employees and ensure they are demonstrating defined culture behaviors, organizations must make sure the firm’s vision and values are clearly communicated.
Grant Thornton’s Return on Culture
research found that too often there is a critical perception gap between employees and executives when it comes to culture goals. The study found that 46% of asset management employees cited teamwork/collaboration as a goal while 41% cited personal accountability as a company goal. Their perceptions differed measurably from those of their organizations’ executives.
Culture shifts amidst constant change
One of the key challenges asset management firms face today is preserving organizational culture during mergers and acquisitions. Driven, in part, by the desire of large pension and wealth funds to winnow the number of external managers they work with, the industry is facing ongoing consolidation. As a result, firms must differentiate themselves as being truly unique, and a healthy, positive culture can serve as a primary competitive advantage.
Moreover, as the industry pivots its investment strategy to one that is more dynamic, short term and goals-oriented, asset management firms will need to make governance, behavioral and cultural changes to truly transform their portfolio thinking.
“Everything is evolving so fast you can’t focus too much on long-term planning,” Patanella said. “Everyone in the industry is trying to keep pace with the rapid growth with technology. While you still need a long-term plan, you must be able to pivot based on changes that are occurring very quickly in today’s asset management climate. Advancements like virtual exchanges and blockchain are really changing the way individuals do business and it’s only the beginning.”
As firms look to build a culture that attracts and retains talent to help them face continual technological change, they are proactively educating their workforce and rolling out new initiatives and protocols. It’s critical that firms monitor whether these changes are being embraced.
For example, Patanella noted that hedge funds are being challenged with a change to passive investments. “The days of having active investors watching terminals and making decisions has slowly vanished,” he said. “Computers are now helping to make those decisions.”
Similarly, private equity is looking at deal making in a different way. “Rather than investment bankers making decisions and presenting to boards,” Patanella said, “they are analyzing data to evaluate the purchase decision to identify trends.”
In other cases, the asset management workforce may be concerned that artificial intelligence will impact their work output and day-to-day activity. “Cultivating, managing and monitoring a culture while navigating these changes is not easy,” Grant Thornton’s Patanella said.
Attracting a new breed of talent
As a result of these systemic changes in the investment management industry, asset management firms are training a laser focus on attracting and retaining quantitative specialists, data scientists, ESG experts, portfolio constructionists and, in particular, more women, minorities and people with diverse backgrounds. Demand has escalated for this kind of next-generation investment talent from firms committed to reshaping their businesses to meet new investor needs. Attracting this new breed of talent requires an understanding of what matters most to them in their work life.
Grant Thornton’s Return on Culture research found that Generation Z and millennials value purpose-driven organizations that provide them with defined career paths and the ability to balance their personal and professional lives.
Companies like New York-based Neuberger Berman, AQR Capital Management LLC and Blackstone Group LP are carefully curating employees’ careers. They have implemented programs that allow employees to staff new teams or move around the company to find a new opportunity rather than leave the organization.
Other firms are focused on recruiting diverse, younger employees in order to challenge “groupthink” and offer up different ideas and perspectives that challenge traditional beliefs. This is especially critical as firms seek data scientists from the technology sector and other industries to add robotic process automation, blockchain and machine learning to their arsenal of tools to improve efficiency, cut costs and enhance investment management.
“A lot of individuals are excited about getting involved in this changing evolution,” Patanella said. “That’s part of the attraction. The fact is that technology is now a major business driver for the asset management industry.”
However, he cautioned that in order to compete for in-demand tech talent, asset managers need to right size compensation. In today’s industry, the chief information officer and similar positions play key strategic roles in asset management firms and must be compensated accordingly.
It is especially critical that asset management firms address gender diversity in order to cultivate a culture that drives growth and innovation. Asset managers have a vested interest in building a more inclusive workforce because their clients want to see diversity in their firms’ employee base. A Citywire study of 16,000 fund managers found that mixed-gender fund management teams delivered a 0.5 percent better return over three years.
Too often, the “star manager culture” evident at some firms means that minority voices get drowned out. That’s why organizations need to focus not just on increasing the numbers of diverse workers but also avoid a “check the box” mentality by actively committing to a goal of true inclusion.
Pacific Investment Management Co. LLC, for example, created Project DNA, a program aimed at embedding diversity at every level of the company, including recruitment. Internal teams are focused on diversity and inclusion to provide firm-wide training to erase unconscious biases and promote a diverse culture.
“Historically, the percentage of women and minorities working and owning asset management companies has been very, very low—probably under 10%,” Patanella said. “Salaries and bonuses have been lower for these groups even given that asset management is a performance business.” However, recruiting a more diverse workforce is a critical priority for asset management firms as the buyers of their services increasingly represent women, minorities and millennials.
Key elements of healthy cultures
What constitutes a healthy culture that helps asset management firms drive growth, innovation and bottom-line performance? Here are a few critical attributes of an effective culture:
- Alignment of culture with business goals.
Not only does an organization’s culture need to be closely aligned to the firm’s values and business goals, but it has to be consistently demonstrated both inside and outside the organization.
- Leadership action to embed culture.
A healthy culture starts with tone at the top. Leaders must demonstrate through example that they are living every day the values of the organization’s culture.
- Continual communication and training.
Cultivating culture is not a one and done activity. In order to ensure employees are engaged and invested in the culture, communication must be consistent and frequent and should be supported with continual learning and training opportunities.
- Diversity and inclusion.
Culture should be embedded at all levels and include a focus on diversity and inclusiveness. Actively seeking out the diverse thinking of women, minorities, millennials and other groups will enrich the organization’s culture and help to drive innovation and growth.
- Strong employee value proposition.
Firms intent on strengthening their culture must focus on creating a compelling employee experience. This may include addressing key employee needs such as work life balance, pay equity, defined career paths, opportunities for learning and workplace flexibility.
Today’s asset management firms can’t avoid the myriad of changes facing their industry. By understanding corporate culture better and proactively pursuing a commitment to cultivate a people and purpose-driven culture, firms will be well positioned to face whatever disruption lies ahead.
Is your company culture out of alignment?Take Grant Thornton’s culture benchmarking survey to determine your firm’s current areas of strengths and weaknesses. Designed to accommodate any given company’s unique profile, the benchmarking tool tests current performance against five key drivers that lead to healthier cultures including: workplace environment; direct investment in employees, diversity, sense of community and value systems.
National Asset Management Sector Leader, Audit Partner
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