I don’t think I have ever come across an asset management house that did not claim to have a ‘participative culture’.

I would be a rich man if I got a nickel every time I have heard that ‘the views of the most junior analyst are taken as seriously as those of the most senior portfolio manager’.

Of course, this is nonsense: there remains a hierarchy in just about every fund manager, with the portfolio managers at the top. I have been to a number of meetings in which the presentation by analysts to the team in a large company is ritualistic. It rarely leads to anyone changing their minds.

It is actually quite sensible not to listen too closely to the views of the new kid on the block who has not been through enough economic cycles. You have to be at least my age, for example, to remember high inflation.

When it comes to stock picking, however, many large managers are reluctant to try anything new. The business risk of inertia is far less than the risk presented by venturing into the unknown.

To get onto the buy list at large fund managers is often a highly bureaucratic process. By the time a share gets onto the list it has often already reached fair value and the buying opportunity has been missed.

Wider participation

It is admirable that asset managers build up a culture that focuses on the long term, but if you come last in the hurdles enough times, your long-term track record can be damaged quite quickly. A culture that focuses on the long term can rapidly become a complacent culture. In most fields, whether its architecture or journalism, subpar performance over six months would destroy careers. Not so in fund management.

Would a junior analyst suggest improvements to a fund’s performance when the house is doing badly? Unfortunately, the old-timers would label this as ‘capitulation’.

In any case, a participative culture should go a lot further than just the junior analysts.

It is the clients’ money. Clients can vote with their feet if the fund manager is destroying their wealth, but they can also change the mandate. I see nothing wrong with insisting on a tighter tracking error, for example. Active management shouldn’t have to mean swinging from the chandeliers.

Alternatively, clients can reduce their holding in aggressive, but failing, asset managers, and build up a core holding in an index fund or a smart beta fund.

Undoubtedly fund managers are bad at explaining how they add value. As the saying goes, these are the asset managers’ yachts, these are the bankers’ yachts, but where are the clients’ yachts?

A poor performing value manager might have the excuse that it underperformed, say, the FTSE/JSE All Share Index, as the market did not suit its style. But how did it perform against an index tracker mimicking its style such as, for example, the Satrix Quality Index fund?

Who is making the decisions?

A big manager does not have to equal a bureaucratic manager. The way in which Coronation structures its remuneration encourages alpha generation over asset gathering. It has a meritocracy in which the talented are promoted, not a gerontocracy in which the older members of the team hang on to the decision-making process (and the bonus pool) for dear life.

And some medium-sized and large managers are not good at sharing power. There is a joke that Dave Foord has cameras in the Cape Town office so that even when he is on his yacht he can see exactly who is working or slacking off at Foord Asset Management. True or not, the firm has found it tough to shake off the reputation that Dave Foord still makes all the key decisions.

At the other end of the scale, M&G calls its specialist investment teams committees. Isn’t the camel a horse designed by a committee?