Different Sizes, Similar Strengths: Common Traits of Successful Investment Practices

On the surface, Steadyhand Investment Funds and Mawer Investment Management are very different money management firms. Vancouver-based Steadyhand has a total of nine employees and markets no-load mutual funds directly to investors. Mawer, which is based in Calgary, employs ten asset class managers as part of a 103-person office that sells funds through brokers and to individual investors.

However, at the 2013 Wealth Management Conference hosted by CFA Institute and the CFA Society of Calgary, the presidents of both firms agreed that common components drove their successes.

Steadyhand’s Tom Bradley and Mawer’s Michael Mezei, whose firms received Canadian Investment Awards from Morningstar in 2011 and 2012, emphasized the importance of focusing on people, building a strong culture, communicating clearly, managing growth carefully, and being generous with equity.

“It begins with people, philosophy, and business practice,” said Bradley. Mezei added, “Values, culture, and people are the key. We’ve thought of it as a profession first, and a business second.”

Mawer has shown impressive growth in recent years and now manages around $18 billion. According to Mezei, growth at that scale requires a focused, repeatable investment process to “utilize information that everyone has access to.” He said that developing and maintaining the right culture is critical to successful growth.

“Ultimately, you have people, data, and tools, just like everybody else,” Mezei said. To maintain an edge as you grow, “you need to get the right people and let them go to their passion areas.” The recruiting process at Mawer “takes a ton of time,” according to Mezei, but he sees management complacency as something to be guarded against as a firm enjoys success.

Bradley believes smaller firms can have an advantage when it comes to investing and cautioned about unbridled growth. “The investment business is an anti-scale business. When you get too big, you can’t do it as well.”

“Alpha is very delicate,” he added.

Being able to clearly communicate your investment process to clients is also essential, and sometimes overlooked.  “You need to know what your edge is or your clients won’t,” Bradley said, adding that consistency of message is critical. “If you’re a bottom-up manager, don’t lead with a lot of macro. If you’re an absolute-return investor, avoid using the terms ‘underweight’ and ‘overweight,’” which imply benchmarking to an index.

Both Mawer and Steadyhand are independent, employee-owned firms — something Mezei and Bradley agreed was important to maintaining strong continuity.

“Clients should sit across the table from an owner,” said Bradley. “It feels different.” He believes firm equity should be shared broadly, and noted that “founder greed” — when a founder is reluctant to share control and then seeks to monetize his holdings near the end of his career — can be a firm’s undoing .

The employee-owned model, however, makes controlling risks all the more important, according to Mezei, as “there’s no deep pocket behind the organization.” He sees data security and technology as particular sources of risk in today’s environment, but sound risk management practices, such as limiting the size of trades, can help minimize the cost of an error.

Bradley’s assertion that he’d rather have “three smart people in a room than a bunch of analysts spread around the world” suggest that the two money managers will continue to employ different firm structures, but Steadyhand’s president also noted that “there’s lots of room for different approaches.”

The key to long-term success, according to Bradley, is to understand your firm’s strengths and weaknesses, emphasizing the importance of understanding your own process. Analysts should not only analyze specific investment opportunities, but also their own business and personal franchise.

Note: An earlier version of this post mistakenly stated that Mawer has 43 employees. That figure has since been corrected.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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