New research says purpose trumps performance
Investment professionals need to move away from a performance-driven culture to one that is purpose-driven to better ensure clients' long-term goals are met, according to new research from State Street's Centre for Applied Research (CAR)and the CFA Institute.
Commenting on the research, released today, CAR global head, Suzanne Duncan said building a culture and environment with aligned purpose, habits and incentives (phi) could give organisations a competitive advantage that was sustainable and would benefit clients, the providers themselves and ultimately society as a whole.
"When investment professionals are asked to deliver against inappropriate metrics on an inappropriate time horizon, their passion for markets eventually becomes divorced from their true purpose — achieving the long-term goals of the investors they serve," she said. "Investment performance today isn't only about alpha; it must focus on phi: a purpose-driven motivation that represents the greatest potential for performance, across market cycles."
"The results of the research clearly point to the existence of phi as a previously uncovered variable that, in addition to motivation, might have an outsized impact on investment performance, as in quantum mechanics, where a ‘hidden variable' is an element missing from a model that leaves the system incomplete," Duncan said.
She said the research argued that the same was true for the investment management industry: "without the alignment of purpose and passion, the industry model is flawed".
The research identified the he Asia-Pacific (APAC) region as having the second highest phi globally after the Americas and suggested that asset managers within the region were leading the way in phi, followed by asset owners and insurance firms.
It said that in Australia, while investment management professionals were driven by their passion for the financial markets, short-term pressures seemed to be felt by the industry, with 75 per cent of respondents citing pressure from members of their board and management team as negatively affecting decision making.
It said this also translated to concerns about losing their job after a short period of underperformance, with 22 per cent of respondents citing career risk concerns as a short-term pressure in Australia, versus 11 per cent in the Americas and 16 per cent in EMEA.
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