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Empathy is not a core skill or concept that we usually associate with investment management. It’s often viewed as a soft skill associated with the human resources or client services areas – and lately has become the leadership quality du jour. It’s often seen as secondary to the quantitative and analytical skills normally associated with the investment profession.
This is something I’ve always found odd, considering that empathy is at the very heart of what investment managers do. The broad definition of empathy is ‘the ability to understand another person's feelings, experience…situations’. In practical terms, this means placing yourself in another person’s shoes when looking at a particular situation or problem. This could be anything from a financial conundrum to a company you are considering investing in. Empathy might sound simple. It is hard. Philosopher Henry David Thoreau described it this way: “Could a greater miracle take place than for us to look through each other’s eyes for an instant?”
Empathy might sound simple. It is hard. Philosopher Henry David Thoreau described it this way: “Could a greater miracle take place than for us to look through each other’s eyes for an instant?”
Most asset managers today never get to meet the end investors in their funds or other investment solutions. Yet, understanding these end investors’ needs and goals is essential in structuring the right solutions. How can empathy not be a key consideration for investment managers?
There is an old investment adage: if you don’t understand it, don’t invest in it. For investment managers, managing a portfolio of companies, across various industries, there really is no way you can resolutely rely on your own experience to make a sound judgement on a business as a great investment for the future, or not. To make sound judgements, investment managers need to nurture their ability to understand each of the stakeholders connected to a company and look at the business proposition through their eyes, not just their own.
Failing to recognise the inherent value of empathy leads to ignorance and hubris. According to our head of the multi-manager investment team, Ryan Friedman, hubris as one of the biggest red flags for the team to disinvest from a fund manager. “It’s a quality with an asymmetric payoff profile, with risks that are not easily qualified,” he says.
Our firm (Investec Wealth & Investment International), started out in 1987 as a stockbroking firm. We have held direct relationships with our clients since the very beginning. A deeply personal conversation about an individual or a family’s wealth creation objectives to design the appropriate portfolio has been our way of working since the beginning. This dynamic also creates an enormous sense of accountability, simply because stockbrokers have to regularly meet with their clients to give feedback on their performance. At times, this is a deeply rewarding experience, and at others, deeply humbling. Without empathy, you can’t have humility.
A deeply personal conversation about an individual or a family’s wealth creation objectives to design the appropriate portfolio has been our way of working since the beginning.
The enormous responsibility this places on those who design and then manage a financial solution for individuals, families, trusts or businesses, can’t and shouldn’t be avoided. It is the burden and the joy that gives meaning to our craft.
While our business has evolved and grown to be more than just managing stockbroking portfolios, our founding roots have embedded a lasting, deep sense of responsibility to our clients. We are custodians of their wealth, the ones entrusted with fulfilling their financial goals – the hopes they hold close to their hearts. Over decades, it remains as clear today as much as then: the purpose of investment management is to change people’s lives.
The ability to recognise that financial aspirations mean different things to different people will be one of the defining attributes of financial services firms that will be relevant in the future. My own, perhaps sceptical view is that in building large scale solutions, the industry might have lost sight of why we do it in the first place: to change the life of the investor sitting in front of us. But I remain optimistic that, as an industry, we are getting back to understanding this fundamental reason for our existence.
For Investec’s part, we hope to leave a legacy of creating enduring wealth for the societies we live in. A part of that legacy is to raise capital for businesses to expand, grow and contribute to society broadly. As managers of our clients’ wealth, we thus have an important role to play in allocating capital in a way where both our clients and all stakeholders benefit. This, in essence, is what empathy is all about.
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