REAL CASE A
The bank case
Turning a dysfunctional investment committee (IC) into a high performance team that produces original, evidence-based investment decisions.
The bank CEO and COO mandated us to turn the IC into a quality decision making platform for the bank, where IC members are incentivized and motivated to share their best understanding of capital markets. The bank as a whole should benefit from that through better investment decisions and as a derivative, a better narrative through which their comparative advantage is easier to communicate.
Moderator = defensive role
Real-time submission of documents
No documentation of debate or takeaways
Respectful tone, but rare notion of momentum in debate
Risk manager without function
Scoring model with marginal relevance
Lack of critical and creative thinking – exchange of opinions instead of evidence
Like an old couple that has exchanged the same arguments for too often
IC was performed like shadow boxing during an obligatory act
No interest in showing your best arguments as IC was considered irrelevant
No exchange of IC members
No change of rhythm
No change of monetary incentive system
Simple rules explained
A short list of mutually agreed rules tailored to the person or organization using them, applied to well-defined activities, and open to giving people latitude to exercise discretion.
Nudging and Heuristics Management has been applied through the Simple Rules approach to introduce generally accepted guidance in a participative way.
CHOICE ARCHITECTURE (PROCESS)
- Maximising cognitive diversity
- Advocatus Diavoli between Equity and Fixed Income
- Documentation & Preparation
- Rescheduling PreC
- Focus on evidence-based reasoning
- Risk Manager as challenger stone for technical and methodological issues
- Visualization of provided content and conclusions
- Moderator as facilitator
IC members now consider the monthly IC an inspirational exchange of thoughts for their own areas of responsibility
IC members are intrinsically motivated to prepare for the IC and to share their best evidence during the IC
As evidence is critically appraised, IC decisions are more rationally taken
The choice architecture provides a framework that enables IC members to improve over time
REAL CASE B
The private foundation case
Plausibility checks for investments and stakeholders
The principal and the IC chairman mandated us to introduce accountability and critical thinking to the IC investment due diligence and monitoring activities.
IC members are friends and business partners of the principal (lawyer, tax advisor and banker). No capital markets specialist
The foundation portfolio was full of products the bank either managed itself or represented (expensive me-too financial instruments)
Lack of incentive for IC members to diligently monitor the portfolio, defensive interpretation of mandate to minimize legal liabilities while staying formally compliant.
Lacking definition of investment objective and strategy (in foundation certificate and amendments)
Formal compliance was performed for the regulator, not to hold IC members accountable
IC monitoring activities were pro-forma acts.
No reflection. No critical thinking.
IC members cannot be replaced
IC quarterly meetings should remain
As the AuM is in double-digits, additional running costs should be avoided
Mental immune system explained
It protects us from too fast, unintended change.
Source for our immunity to change as individual, leading to organisational resistance to change.
- Mental immune system diagnose of IC members and principal
- Analysis of conflicts of interest of IC members
- Analysis of IC incentive system
- Introduction to best practices in foundation investment management
- Interactive definition of investment objective, hypotheses and principles
- Interactive definition of most common situations in the foundation (manager monitoring, service partner due diligence, etc.)
- Iterative work on Simple Rules for most common situations
- Implementation of PS Tree tool (light version) to discipline decision making and increase accountability
- IC member incentive logic was gamified
- Practice under PS guidance to establish routines as agreed
Easier for principal to evaluate quality of IC decisions
Parts of the asset management has been delegated to external wealth management provider with clear instructions, easy to monitor
Objectives are reached more consciously. License fee for PS Tree is overcompensated by reaching objectives.
Lively debates between IC members during quarterly meetings
More progressive interpretation of Business Judgement Rule. Thus principal and agents are in better sync.
REAL CASE C
The fund manager case
Increasing scalability of investment process
Specialized FI fund manager wants to scale its business to attract more AuM from more institutional-types of investors.
Small team of a successful fixed income manager with triple-digit AuM with a 10y track record
The founder (= CEO and CIO) was intuitively investing,
The team was brought on board to support with operations, but not to replace or complement the founder
One team member was capable and willing to take on more portfolio management responsibility
The fund management company has a good reputation
in its home market
Founder was unwilling to accept the entrepreneurial responsibility to also manage people as part of his job profile
A classic situation from start-up leadership style to a more
No process was described. Learning and accountability were not consciously performed. Comparative advantage was not defined.
Asset management license was sub-rented, limiting intervention options
Conflict between founder and #2 over compensation matters
Apart from Bloomberg Terminals, IT infrastructure was improvised
PS tools explained
PS Playbook = documents all progress worked on with a client
PS Matrix = visualizes risk factors for easier periodic review
PS Triggers = all KPIs/KRIs chosen plus action points
PS Dashboard = activated triggers, demanding action
Externalization of existing belief system, while complementing it with added—value heuristics and
decision support systems in the areas of:
- Defining and revising the investment strategy
- Defining and revising the investment and risk management process
- Defining and revising the internal investment process responsibilities and communication
- Defining advocatus diaboli roles in team
- Defining the fund managers´ comparative advantage
- Incentive system
Revising the compensation logic and system
Positioning of three fund products based on above incl. term sheet modification
Creation of target-group based communication channels and material (new pitchbook, factsheet, Mailing list templates)
Implementation of PS Playbook, Matrix, Triggers and Dashboard
FI fund manager increased team with complementary skill sets based on needs defined during intervention
PS Playbook, Matrix and Triggers were implemented, permanently supporting the decision makers in an accurate and disciplined of agreed principles and rules
FI manager immediately increased conversion rate in business development due to a better understanding and wording of their own comparative advantage
FI manager merged with another manager to reach growth targets faster, based on gap analysis performed during intervention