To gentlemen portfolio managers like Neil Woodford, Richard Woolnough and Anthony Bolton – who are magnets for client assets and earn millions a year – or hot shot (ex)-hedge fund traders like Greg Coffey, the idea that they need to be coached like a top athlete might seem ridiculous. Employers currently seem inclined to agree – experts suggest that just 1-3% of firms use trading coaching for their investment staff – but, they insist, it’s increasingly necessary to ensure long-term performance.
“Most fund managers don’t admit that they need to be coached because they want to be seen as technical experts, not people subject to behavioural biases, psychological challenges and physical frailties, or that there’s an element of luck,” says Boris Pilichowski, a former Goldman Sachs and Morgan Stanley prop trader and portfolio manager at hedge fund Apson Capital, who now runs investment management coaching service Axis Minds.
Man Group has just enlisted the help of Team GB Olympic cycling coach Shane Sutton through investment consultancy Inalytics’ Trading Peaks academy. A handful of other hedge funds, notably Tudor Capital and Brevan Howard, also use trading coaches, but Pilichowski admits the current number is still tiny. This needs to change, he says.
“To use a sporting analogy, Björn Borg may have become a top tennis player without the aid of a coach in the 1970s, but if he were playing today he’d need a team of people to help with every aspect of his game, as well as physical and psychological conditioning,” says Pilichowski. “The fund management industry is changing, and it’s only now that firms are waking up to the need to consistently coach their investment staff.”
Trading coaches don’t tend to look at technical knowledge; it’s more about the individual. Software assesses when the trade was made, and what mood the portfolio manager was in at the time, as well as factors like posture and eye movement with the aim of suggesting improvements. Then lifestyle factors are analysed – anything from sleep to alcohol intake and diet – and finally psychometric tests to assess personality type and mental resilience.
This all sounds like the sort of attention given to elite athletes, but then that’s the idea. Portfolio managers should be viewed as sportsmen, where body and mind are intrinsically linked, says Pilichowski. However, training portfolio managers and traders is decidedly more complex, argues Clare Flynn Levy, a former fund manager at Morgan Grenfell and head of Essentia Analytics, which has created software for coaching investment staff (again, used by GLG).
“The contextual data is a lot more complicated than it is for athletes – there’s a lot more ‘noise’ in the market than there is on a playing field,” she says. “So when it comes to understanding what the data is saying, and what questions to ask of it, I would suggest that a first-hand understanding of what a fund manager does, day-to-day, is crucial. That is why most of the top portfolio manager coaches are ex-traders or PMs themselves.”
Coaching is not overly intrusive – Pilichowski says he typically meets with portfolio managers once or twice a month for around two hours. What’s more, the training is tailored to the individual’s needs – junior staff usually require more mentoring, older employees often have “relationship issues” that need addressing while others require psychological counselling to change their methods.
One of the barriers to more fund managers and hedge funds taking up coaching methods that, to some extent, require admitting human frailty is a “He-Man” mentality in the industry, says one trading coach under the condition of anonymity.
“If a trader tells me they had a bad day, one of the first things I want to find out is if the baby woke them up at 2am,” they said. “Their management is less receptive so far. I guess I have to do a better job convincing them, but I am fighting a kind of he-man bias.”
Denise Shull is a performance consultant at the ReThink Group and author of Market Mind Games, a Radical Psychology of Investing, Trading and Risk. Most hedge funds she works with focus on a combination of sports psychology, behavioural finance and psychodynamic analysis, which looks at unconscious thought and feelings.
“Once a PM or trader understands that something beyond the fundamental or technical analysis is swaying their decision, they then have a more complete data set their brain is using to work with,” she says. “This also leads to knowing the difference between a feeling of true confidence and one based on impulse or say a compulsive need to be right. The latter, for example, can have very dramatic results in performance improvement.”
Shull’s research also focuses on the concept of “decision fatigue”, namely that the brain tires out and can only make so many good decisions in a row. Workouts, or indeed intra-day naps, could help prevent this.
As well as these coaching methods there are more abstract concepts that financial services firms are still slightly sceptical about – namely meditation and mindfulness. Ray Dalio, founder of hedge fund Bridgwater Associates, famously credits transcendental meditation with aiding his investing by encouraging calmness, centeredness and creativity.
Mindfulness, a psychological technique that aids focus and attention, is being offered to employees at the likes of JPMorgan, Barclays, Citi and Royal Bank of Scotland. It has yet to become commonplace, however.
“There are a few firms in the UK that offer mindfulness training to financial services firms, and they are being kept very busy,” says Flynn Levy. “The vast majority of fund managers have yet to try it, but in their most private moments, I bet most would admit to being interested.”