Author: Adrian Furnham
What can head hunters, clinicians, and psychometricians tell us about which fund managers will succeed? Adrian Furnham, Adjunct Professor in the Department of Leadership & Organizational Behaviour at BI Norwegian Business School, takes a look.
Your star asset manager is about to leave. This comes as a blow; it is a very serious job. You need an excellent replacement: the best, and quickly. You will pay top dollar for the right person.
You have a long (wish)list of attributes – integrity, vision, energy, resilience, and of course ability. The right fund manager would need to work well within a team but also have the courage of their convictions and the intellectual discipline to make key decisions based on strong analysis. The fund manager would need both intellectual and emotional intelligence, as well has having a heavy dose of investment savvy and the ability to take the heat in the kitchen.
But how to find, tempt and then, of course, manage this super-wunderkind? There are various non-exclusive options: asset management companies can use a head hunter, of course. They can advertise widely, set up a mini-assessment centre, plan some really good interviews, and hire psychological consultants. All of these approaches bring different things to the table, and may offer up differing results.
The Head Hunter Approach
Using a head hunter is based on some simple but possibly invalid assumptions. The best predictor of future performance is past performance. But is this true in fund management? It is an unusual case that makes any head hunter who relies only on past performance as a predicator for what a manager will achieve in the future appear less relevant.
The head hunters’ unique asset is their ‘little black book’, or now (we hope), carefully guarded data file on senior people in certain sectors. These files will contain a CV, certainly a detailed job history and probably a number of references of one sort or another, and the head hunter will also have a network of contacts and relevant connections.
Many head hunters like to present themselves as wise, perspicacious, and good judges of character. They consider themselves to be people who understand the business world, the brief they have been given, and the ‘good-fit’ concept. They know about reputation and what a strong candidate looks like. Head hunters are supposed know where to find and evaluate the right person. They best the provide you with a shortlist, with certain recommendations.
There are three limitations of the head hunter approach. First, it tends not to take full cognisance of situational factors. A person might have ridden the bull wave in a thriving sector. During a licence-to-print-money time, the most inappropriate of people may succeed. It may look as if they are doing a good job, but practically anybody could succeed in those circumstances. It is called an attribution error. It is the tendency to explain too much in terms of an individual’s behaviour while ignoring a whole range of social factors that contribute in a major way to success and failure.
And the reverse is also true. Sometimes someone is simply dealt a bad hand: an impossible job, a dodgy board, a falling market. A person set a series of futile tasks may appear a failure, when actually they are capable of more.
Secondly, the ‘experience-speaks’ school of head hunters have to rely on reputational data – references, 360’s, and gossip. There are many reasons to doubt this data. There are those who write great references in the hope that people will leave the organisation, or who perhaps lack insight, or are naïve. Some people are quite simply more accurate and better judges of people than others.
Thirdly, this approach does appear to be unscientific, unreliable and devoid of theory. Does that matter? It does if two head hunters give quite different opinions about the same person. What training have they had to acquire their knowledge? How do they collect, evaluate and integrate information about an individual? In short, precisely what is their ‘third eye’ of insight and intuition based on?
The Clinical Approach
The clinical approach is subtly different. This is not about what a person has done, so much as what a person likes doing, and is capable of doing.
It is about the inside, not the outside, of individuals. It is about potential, rather than what a person has done or achieved. It concerns the size of their engine and their capacity to learn.
The clinical approach is as much about innate capabilities as it is about job history. Hence data gathering may involve a range of techniques to try to reveal the real person behind the mask. There may be well-structured, semi-clinical interviews and certainly an attempt to get at the ‘dark side’ of individuals.
Clinicians evaluate those who make it to a final round. They may be expensive, but their approach is exhaustive.
So does the semi-clinical interview by the trained clinician yield more interesting and important data? Interesting sure, but important? Maybe. Can they truly detect that Holy Grail, namely what really motivates people? Do they pick up ‘deep signals’ which may reveal markers of great talent or potential derailment? The truth is that interviews are expensive and often unreliable.
The Psychometric Approach
The psychometric approach has some things in common with the clinical approach but may appeal, interestingly, more directly to the potential candidate.
It is usually based on three things. The first is an academic knowledge of the data on the personal predictors (ability, personality, motivation) of job success and failure. This must be supplemented by any data on the particular predictors in particular jobs, in this case asset management.
Secondly, the psychometricians using this approach say they know precisely what test-battery to use, and why.
Thirdly, once they have the data they may apply a sophisticated formula (algorithm) to the various components to rank order the candidates.
These days, with increasing computational power and test-savvy designers, it may be possible to test people from any place, region, and country accurately, quickly and potentially very cheaply.
However, the major critique of the psychometricians is the well-worn debate about psychological tests. Yes, people fake; yes, ability testing may not be fair to some groups; yes, the predictive validity (evidence) of some tests is weak. Further, having evidence of what a person wants to do and is capable of doing is not always sufficient to be absolutely certain they will perform this way in a new job.
Some important things like integrity, charm and trustworthiness just seem more difficult to assess through the coldness of tests, no matter however clever.
Finding the Right Approach
So where does this leave an asset management business, looking to hire an outperforming fund manager? Ideally, if you have enough money you might use all three approaches. Get the head hunters to give you a (not too) short list, and supplement that list with some outsiders, who are recommended by others or who apply through different channels. Then put them through a rigorous and well-designed psychometric assessment centre. After that, send the remaining few to the canny clinicians for a mental health-check once over.
And there remains an important and highly sensitive issue: discrimination against diversity. Which approach may be least biased from a Diversity and Inclusion point of view, including candidates without significant experience, who have potential? Given, for example, that less than 1% of investment professionals are Black, according to data from the Investment Association, with many firms saying it is difficult to find the right talent, which approach may be best?
Certainly the head-hunter and clinical approach literally “sees people” whereas this may not be the case with the stand-alone psychometric approach which argues it is colour-blind. May be the clinical approach is most open to the possibility of “positive discrimination”: but that is yet another complication.
Selection is difficult. People are complex, capricious and contradictory. And, perhaps most significantly, the jobs for which people are selected may, in today’s environment, change quickly and dramatically. Fund managers need to be team players. They also need a strong skill-set, a strong sense of resilience, a good amount of self-conviction, and the ability to be intellectually disciplined. These skills are not always apparent from one method of recruitment, especially when hiring younger candidates with potential, but with less experience. Understanding the benefits and limitations of the various recruitment channels that can be used by investment firms will help them find the best candidates for them.
Adrian Furnham, has just published Twenty Ways to Assess Personnel (July 2020) with Cambridge University Press. He is currently a Professor in the Department of Leadership and Organisational Behaviour, Norwegian Business School, Oslo.