The ‘art’ of asset management and why finance students don’t get it
Is there such a thing as too much technical knowledge? Do students going into financial services spend so much time with their nose buried in a textbook that they forget how to be critical and, importantly, become good investors?
When it comes to becoming a trader or portfolio manager, there’s an increasing opinion developing that good investors – particularly those heralding from ‘Anglo-Saxon’ countries – should study an arts degree, rather than a technical subject.
“We have done a lot of research in what makes a good asset manager,” Paul Smith, president and CEO of the CFA Institute told us. “Technical competence, the sort of training we are doing at the CFA, was only part of the solution. Logical thinking, the ability to synthesize information, to think through problems, to learn from your mistakes. All of these things and some more which are taught in the humanities were just as weighted as the acquisition of technical information.”
Smith has a Masters degree in History from Oxford University and says that a “broad-based university education” followed by technical training is the way to produce effective fund managers. He still also runs his own hedge fund, Asia Alternative Asset Partners, in Hong Kong.
“The marriage of a technical and a humanities education is thought to be a good balance. A big debate in asset management is whether it’s an art or a science,” he says. “I tell kids in Asia to go out and get a humanities education. The problem in Asia is everyone has a technical education and no one ever reads a book – that is terrible.”
An arts degree in UK fund management is “very common”, he says. This is something a recent graduate recruit at a large UK asset manager agrees with: “You have to be able to assimilate a lot of information quickly – something an arts degree helps with – and you need to get the bottom of a story, particularly if there’s negative news about a company in your portfolio. This requires looking beyond the numbers and a critical outlook is a benefit.”
Nonetheless, this remains a very Anglo-Saxon outlook. In other countries, you would not dream of applying for a finance role unless you’d studied a quantitative subject. Boris Pilichowski, a former prop trader at Deutsche Bank and Morgan Stanley and hedge fund manager who now runs investment management coaching firm Axis Minds, is from France and says that no one with aspirations to work in finance studies the arts there.
But in the City, it’s common to find good fund managers who have never studied finance, he says.
“You can be extremely quantitative, but also be extremely weak in your behavioural aspects when you invest,” he says. “It’s one thing being a great scholar, but if you get emotional when trading this will affect your results. You need a balance.”
And if you want an example of someone who has studied a seemingly impractical degree and then made it in fund management, look no further than Simon Pryke, chief investment officer at Newton Investment Management, who studied history of art with a specialisation in Byzantium.
Its CEO, Helena Morrissey, also has a philosophy degree: “My degree certainly taught me to be open-minded and to understand that assumptions underlying conventional wisdoms are just assumptions, not truth,” she said previously.