The Culture is as important as the return
You get a certain vibe when you enter a place. Whether it's a shop, a bar, restaurant, a dentist's office, a friend’s home or an investment manager – each offers a unique atmosphere that usually hits you the minute you walk through the door. The vibe of a place sets the tone for and is the foundation of an organization’s culture. A pediatrician’s office is different from that of an oncologist, while a hip, hot bar is different from a local pub. Each has a character which is defined by those who occupy the space. Usually, the culture is set by the boss, who sets the tone for every person in the workplace. The top doc, for example, choses what's on the walls, in the waiting room and how the examination rooms look.
When evaluating a money manager, you need to do a deep dive into the organization. Traditionalists look at the numbers, the strategy, the risk systems, the service providers and then do background checks. Much of the due diligence that is conducted today is simply checking the boxes on a due diligence questionnaire. Those who actually plunge into the personality or culture of the managers often see things that checking a box simply does not reveal.
The best way to evaluate the culture of a firm is to interview both decision makers and staff. Often you will learn more from those sitting on a trading desk entering orders or a financial analyst in the accounting department than you will from the head of the firm, the top marketer or the head of the trading desk. Heads of anything are more polished those who sit on desks and crunch the numbers.
The thing to look for first is camaraderie. Is the organization a team that is working together to beat the market and perform for investors, or is there is a considerable amount of tension? If so, where does it come from and how does it affect the firm's success? Big firms have the same issues as small firms, just on a larger scale. During the due diligence process, ask the people you interview about the camaraderie at the firm, whether people are engaged after they leave the office or if it's just a job that ends when the markets close.
The culture of the firm stems from the top. The environment is direct reflection on the culture. The IMDDA staff has visited and conducted interviews with managers of all shapes and sizes and has found that cultures vary as much as investment strategies.
There are some firms that pride themselves on providing unlimited snacks and beverages to employees, while others give workers vests with the company logo. Some firms have extensive art collections that mirror that of the founder. One firm is famous for having offices with no doors so that everyone feels comfortable engaging one another. Another is set up in silos and people do not speak with anyone other than those in their group. Some firms require a shirt and tie; others go business casual. One firm we met with had a pool table in the center of the trading desk.
Each is unique unto itself, but understanding the culture will give you insight into how the firm operates. That's what you need to find out during your due diligence study.