By Bill Kelly, CEO, CAIA Association
Ebenezer Scrooge was not exactly a cuddly CEO. The way he treated poor Bob Cratchit alone would not have exactly put Scrooge & Marley Ltd. in the top quartile of the Sustainalytics’ ESG Risk Ratings, as he routinely gutted any notion of social responsibility. He would also very likely have pulled a Steve Schwarzman if he were asked to sign a Business Roundtable proclamation that put any stakeholder ahead of the shareholder, as the former had already been brought to a boil in his own Christmas pudding. Eventually, Scrooge does find a road to redemption, and the role of one starving child named Ignorance and a ghost operating under the surname Yet-To-Come have modern-day implications for today’s captains of our industry as they hunt for alpha and growth.
One of the many endearing qualities of A Christmas Carol is that it is truly a story of hope and redemption for those willing to take stock of their weaknesses and move toward demonstrable change. While the alts industry doesn’t summon unannounced ghosts making house calls to take you on a journey, the signposts are aplenty, and Ignorance will no longer be a defense. The latest tome on this subject is the 2019 Global Alternative Fund Survey courtesy of EY and it is full of Yet-To-Come observations.
Cratchit may have been born in the wrong era, as the future seems to be all about the employee, and a focus on talent becoming a key differentiator for the successful enterprise. The skillsets sought are becoming increasingly varied, and a substantial premium is being paid to those with technical skills, along with the ability to tease any form of alpha out of the rising mountains of unstructured data (note to self: FDP Institute). Succession will be a dominant future theme too as the profile for tomorrow’s C-suite team will be far more diverse in skills, gender, ethnicity, and age, and the Scrooge profile of the middle-aged white male will become more of a ghost of its own.
Asset growth will also need to be reconciled on the priority list. Interestingly (but not surprisingly), it has topped the list of first priorities for the GP’s in the hedge fund and private equity space for two years running. The LP’s have a dramatically different take, however, as they look at priorities for their managers, and asset growth is almost in last place. Number one on their agenda is cost management and rationalization which is not just code for lower fees. Product rationalization, investment in business infrastructure, and more of a focus on outcomes that are centered around customized solutions and strategic partnerships, all come into play here.
It turns out too that maybe it wasn’t just Scrooge who eschewed sound ESG practices. The survey findings on this subject were a bit puzzling as just about two-thirds of the LP respondents defined “a manager’s internal ESG policy when deciding whether to make an investment” as critically important. How could it be then that over 70% of the hedge funds and PE GP’s say that they “do not offer/do not plan to offer” ESG products? Sounds a little like Cratchit 2.0.
As you roll into (hopefully) the quiet days of the holiday season, use this time to recharge your batteries, take stock, and embrace your most precious assets: family, friends and health. Also, use this as a time for Scrooge-esque reflection on your career, your future, and your fit-and-purpose for what will be a very different period ahead. Happy holidays and New Year to all who have been kind enough to read, comment and “like” the musings of this column throughout 2019. God bless you, everyone!
Seek diversification, education and know your risk tolerance. Investing is for the long term.