From traditional to scalable and flexible: How this asset management expert is redefining the industry! [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
A flexible workforce performs a variety of functions. It consists of multi-skilled workers that grow or shrink in size depending on a firm’s current needs.
Nowadays, many employers across industries prefer a flexible workforce because it enables them to adapt to changing marketplaces. As an alternative to permanent staffing, firms hire part-time workers, independent contractors, and freelancers to conduct project-based work.
BC-GUMPS is a great example of how a scalable and flexible workforce can revolutionize even the most traditional and rigid industries like asset management. That’s why today, we’re featuring Dave Daglio’s insights on the value of an investment firm that scales its workforce.
Dave is the CEO of BC-GUMPS. He is a former-engineer-turned-equity-investor who is keenly interested in the intersection of human values, behavioral science, and business strategy.
Prior to his current title, he was the Executive Vice President and Chief Investment Officer of BNY Mellon. During his tenure at the firm, he helped design, launch, and manage a unique equity investing approach and the merger of 3 companies to create the 12th largest U.S. Asset Managers with USD 500 billion in assets.
We encourage you to read the article below. You’ll be gaining lots of new and useful insights from him.
The Independent Investor
The traditional workforce approach, which is based on strict hierarchies and rigid job descriptions, can be a hindrance to growth in today’s rapidly changing and dynamic business environment. To stay competitive and meet the challenges of the modern market, companies must adopt a more flexible and adaptive workforce model.
One of the biggest challenges of a traditional workforce is it can stifle innovation. Employees are often expected to stick to their assigned roles and responsibilities, with little room for experimentation or creative problem-solving. This often results in a lack of new ideas and a failure to take advantage of emerging technologies or market opportunities.
Let’s apply these concepts in the asset management industry…
According to Dave Daglio, CEO of BC-GUMPS, having a traditional workforce approach can limit the ability of asset management firms to stay competitive and respond to the changing needs of the market.
In terms of function, traditional asset management firms employ teams of full-time analysts with specific skills and expertise. This entails high, constant costs, even when the industry and market do not allow it.
To succeed in this rapidly evolving industry, firms must quickly adapt and come up with new solutions. However, with a traditional workforce model, employees are often limited in their ability to experiment, take risks, and generate new ideas. This leads to loss of new opportunities in the business landscape.
How to Thrive in a Constantly Changing Work Environment
Prior to establishing BC-GUMPS, Daglio used to ask if he could hire 10 analysts for 6 weeks then let them go once a specific project was over, but his colleagues consistently told him “no.”
According to him, this is how a traditional workforce approach makes it difficult to attract and retain top talents who are looking for dynamic and flexible work environments.
He says by sticking to a rigid hierarchy and limiting opportunities for advancement, asset management firms miss out on attracting the best and brightest employees.
Other challenges include:
- Operation, Strategy, and Cost Constraints
Worries about longevity and its influence on revenue and cost of company operations slow down management’s response time and decision making, thereby reducing their willingness to take risks or invest in short-term gains.
This results in missed opportunities and a failure to keep up in an ever-changing marketplace.
- Rigid Approaches to Operations
Flexibility and high responsiveness are difficult when a company’s nature of work is in investments yet its incentives are not in the right place. This could be in the form of not focusing on making money for clients/investors but on the stability and profitability of a company’s operations.
This rigid business model can also lead to a lack of motivation and engagement among analysts or employees. When they are not given the opportunity to take on new responsibilities, contribute to the company’s overall success, or work on innovative projects, they may become disengaged and less motivated to perform at their best. This can result in lower productivity and performance level.
So, how can traditional asset management companies address these issues and revolutionize their workforce?
One way is by implementing SCALABLE and FLEXIBLE workforce operations.
Daglio believes this is the future not only of the asset management industry but also of many other industries, especially those relying on decades-old structures, non-replicable solutions, and complex business frameworks.
He says to overcome the limitations of a traditional workforce approach, asset management firms must implement the following:
- Fewer Operational Constraints
This means anchoring analysts and employees on the right incentives and having an easier or shorter time span deciding on which business or market opportunities to pursue.
Additionally, to facilitate quick and efficient decision-making, asset management firms should adopt flexible organizational structures that allow employees to take on new responsibilities and make decisions at the local level. This will help reduce bureaucracy and increase employee engagement and motivation.
- Systematic Processes, Approaches, and Frameworks
This pertains to the need for a smaller number of core, high-performing analysts or employees, and easy scalability whenever market conditions call for such measures.
When an asset management workforce approach is non-traditional, a firm has the chance to wait for the right and most profitable opportunity, which removes all non-essential fees from the equation and creates the best offerings for clients/investors.
The application of the above pillars and approaches is what Daglio and his team are doing at BC-GUMPS.
At the firm, they explicitly define who they are, what they do, and how they approach building a new brand of asset manager focused on bringing episodic investment opportunities to clients.
In other words, they bring investment solutions to clients when they believe there is a clearly defined and asymmetric risk-return payoff available within a defined time period. Then, they close those products once performance objectives have been achieved or the opportunity has vanished.
Daglio and his team also believe investment opportunities must meet 3 specific pillars:
- Constraints create opportunity.
No investment wins 100% of the time with unlimited capital. In fact, most active managers underperform passive benchmarks over half the time.
At BC-GUMPS, Daglio and his team make products available only when they are positioned to win in the given market context, and only at the scale in which they are most effective.
- No one is that smart.
Some of the smartest investors in the world experience losing streaks too. If all it took was intelligence, smart investors would make money forever. However, Daglio and his team believe a systematic process is more important than intelligence, and that’s why they are focused on creating smarter processes, not smarter analysts.
According to Daglio, if returns are repeatable, there should be an opportunity to invest systematically through a dedicated approach. If no such opportunity exists, that means BC-GUMPS doesn’t have the right systems in place.
- Asymmetry isn’t negotiable.
Daglio believes incentives dictate behavior, and if one is incentivized to keep finding new ideas to support an evergreen fund, that person will keep finding ideas, even if there isn’t asymmetry in the investment. That’s why one of BC-GUMPS’ key criteria for investment is the ability to explicitly define the asymmetry of the opportunity and why it is present.
Without this criterion, clients/investors won’t understand the rest of the trade and could end up owning things they don’t understand.
Daglio’s primary goal at BC-GUMPS is to consistently uncover opportunities that meet the criteria listed above and effectively build processes that follow the investment plan to generate returns for clients. These were developed from years of experience, and with thoughtful research and consideration.
Without these key pillars, Daglio believes he and his team would fall into the same traps as their more traditional peers, whose incentives put them at odds with their clients’ objectives.
These traditional asset managers gather assets indefinitely and charge their clients into perpetuity, regardless of the skill or value actually provided.
We hope you learned a lot of scalable and flexible asset management insights from Daglio!
Remember: Various changes are taking place in the business and investment world nowadays. So, if you’re an investment firm owner who wants your business to thrive, or an asset manager who wants to effectively and efficiently make money for your clients while boosting your career, Daglio’s advice is for you.
Have a great day!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
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“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
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