Winning at Active Management. Welhoelter Michael A.

30 Subsequent research has shown both the Sharpe ratio and active share to be informative in measuring past performance, but the industry is still in search of an effective predictor. (Investment manager skill is a topic covered in detail in Chapter 6.)31

      1

      With a nod to the movie Monty Python and the Holy Grail (Michael White Productions: 1975).

      2

      Jason Zweig, “The 11-Year Itch: Still Stuck at Dow 10000,” The Wall Street Journal, June 12, 2010.

      3

      S&P Dow Jones Indices. McGraw-Hill Financial. Accessed at: www.djaverages.com/?go=industrial-index-data.

      4

      Wooten, James A., “The Most Glorious Story of Failure in the Business”: The Studebaker-Packard Corporation and the Origins of ERISA.

1

With a nod to the movie Monty Python and the Holy Grail (Michael White Productions: 1975).

2

Jason Zweig, “The 11-Year Itch: Still Stuck at Dow 10000,” The Wall Street Journal, June 12, 2010.

3

S&P Dow Jones Indices. McGraw-Hill Financial. Accessed at: www.djaverages.com/?go=industrial-index-data.

4

Wooten, James A., “The Most Glorious Story of Failure in the Business”: The Studebaker-Packard Corporation and the Origins of ERISA. Buffalo Law Review, Vol. 49, p. 683, 2001. Available at SSRN: http://ssrn.com/abstract=290812 or http://dx.doi.org/10.2139/ssrn.290812.

5

These observations have been measured and documented by consultants McKinsey & Company in their 2015 industry review, “Navigating the Shifting Terrain of North American Asset Management.” Accessed at: http://www.mckinsey.com/client_service/financial_services/latest_thinking/wealth_and_asset_management.

6

Edgar H. Schein, Organizational Culture and Leadership, 4th ed. (San Francisco: Jossey-Bass, 2010), 16.

7

Roger Urwin, “The Impact of Culture on Institutional Investors,” Towers Watson/Thinking Ahead Institute, 2015.

8

Schein, Organizational Culture and Leadership, 18.

9

Ibid., 14.

10

Ibid., 3.

11

Andrew W. Lo, “The Gordon Gekko Effect,” NBER Working Paper Series, Working Paper 21267, National Bureau of Economic Research, 2015, p 6. Accessed at: http://www.nber.org/papers/w21267

12

Ric Schmidt and Jonathan Rosenberg, with Alan Eagle, How Google Works (New York: Grand Central Publishing, 2014), 29.

13

Edgar H. Schein, The Corporate Culture Survival Guide, New and revised ed. (San Francisco: Jossey-Bass, 2009), 52–58.

14

Booz Allen Hamilton, “Beyond Command-and-Control: Managing the Diverse Corporation in Today’s Turbulent Times,” 5. 2000. Accessed at: http://www.boozallen.com/content/dam/boozallen/media/file/80674.pdf

15

Lo, “The Gordon Gekko Effect.”

16

“Frederick Winslow Taylor, The Principles of Scientific Management (New York: Harper & Row, 1911). Accessed at: marxists.org/reference/subject/economics/taylor/.

17

Booz Allen Hamilton, “Beyond Command-and-Control,” 4.

18

Ibid., 4.

19

Joel Spolsky,” The Command and Control Management Method,” Joel on Software (joelonsoftware.com), 2006.

20

IBM Corporation, “Leading through Connections: Case Studies from the Global Chief Executive Officer Study,” IBM Institute for Business Value, 2012. Accessed at: http://www-01.ibm.com/common/ssi/cgi-bin/ssialias?subtype=XB&infotype=PM&appname=GBSE_GB_TI_USEN&htmlfid=GBE03535USEN&attachment=GBE03535USEN.PDF

21

This framework for describing investment management culture arose from an offsite meeting many years ago, between the management of Credit Suisse Asset Management-Americas (at the time, led by William Priest) and consultants McKinsey & Company. We have found it to be a durable and reliable guide.

22

Gillian Tett, The Silo Effect: The Peril of Expertise and the Promise of Breaking Down Barriers (New York: Simon & Schuster, 2015), 19.

23

Ibid., 179.

24

Schmidt and Rosenberg, with Alan Eagle, 29.

25

Ibid.

26

Ray Dalio, Principles (2011), 40. Accessed at: http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates- Ray-Dalio-Principles.pdf

27

Maxine Boersma, “My Job Is to Protect the Firm’s Culture,” Financial Times, May 9, 2012.

28

Paul Woodruff, The Ajax Dilemma: Justice Fairness and Rewards (Oxford, England: Oxford University Press, 2011), 120.

29

William F. Sharpe, “Mutual Fund Performance.” The Journal of Business, Vol. 39, No. 1, Part 2: Supplement on Securities Prices (January 1966): 119–138. Accessed at http://www.edge-fund.com/Shar66.pdf.

30

Martijn Cremers and Antti Pettajisto, “How Active Is Your Fund Manager? A New Measure That Predicts Performance,” March 31, 2009. AFA 2007 Chicago Meetings Paper; EFA 2007 Ljubljana Meetings Paper; Yale ICF Working Paper No. 06-14. Available at SSRN: http://ssrn.com/abstract=891719 or http://dx.doi.org/10.2139/ssrn.891719.

31

A similar challenge of prediction plagues another service industry – Major League Baseball. In spite of a rich database of performance statistics, managers have a poor record of choosing future all-stars, even in the game’s comparatively well-controlled conditions. “The draft has never been anything but a.. crapshoot,” said Oakland A’s manager Billy Beane, in Michael Lewis’s book Moneyball (New York: W.W. Norton and Company, Inc., 2004), 17. “We take fifty guys and we celebrate if two of them make it. In what other business is two for fifty a success? If you did that in the stock market, you’d go broke.” After 2002, however, the intensive application of sabermetrics statistical analysis transformed baseball to a somewhat more disciplined business. (Sabermetrics is the empirical study of in-game baseball statistics, and takes its name from the Society for American Baseball Research.)