Announcing My New Book: Organizational Alpha


One thing you learn after spending a considerable amount of time in the institutional investment world is that the various fund types in this space are kind of like high school kids. They all end up forming their own cliques along with their own unique traits among group members.

In one group you have pension plans. Another would be made up of family offices. The newest group is the sovereign wealth funds. And then there’s the endowments and foundations world. And of course, every group assumes they have superior investment abilities over the others. Within each clique, there tends to be plenty of sharing among peers in terms of best practices, investment ideas, due diligence, research, job candidates and such.

And one of the ways in which this peer-to-peer sharing goes down is at investment conferences (which can also be segmented for these specific fund types in some cases). Institutions have the big bucks in terms of assets so these conferences are usually very well done. The speaker lists include some of the best money managers, economists and financial thought leaders in the world.

While discussing investment ideas, money managers and the macro investment landscape is always an interesting part of the job, the best conversations always take place during the closed-door sessions (institutions and nonprofits only — no money managers) where those in charge of running these funds can really open up about all of the challenges that can be involved when running money for a nonprofit, college, hospital, charity, municipality, wealthy family, etc.

Each time I’m involved in one of these events I’m always struck by how little the markets, investments or asset allocation comes into play when discussing the overall management of these funds. The problems typically involve:

  • Dealing with the board or investment committee and getting decisions through the group decision-making process in a timely manner.
  • Functioning well as an organization.
  • Communication (or a lack thereof) between the investment staff, consultants, money managers, board members and fund donors and the various conflicts of interest, be they actual or perceived.
  • Getting everyone on the same page in terms of both long-term and short-term investment plans.
  • Setting a course of action that everyone can agree on concerning the overarching investment philosophy, individual strategies and changes to the portfolio.
  • Aligning the investment portfolio with the long-term mission of the fund in question.
  • Managing all of the different egos, goals, people and competing interests that come with investing multiple millions or even billions of dollars in a quest to do good for their beneficiaries.
  • Putting together a portfolio mix everyone can be happy with.

Everyone assumes that it’s the investment opportunities, money managers or fund selections that drive the performance of these large pools of capital. Yes, these variables are all important, but none of them really matter if you don’t have the correct infrastructure in place to begin with.

I’ve toyed around with this idea of organizational alpha for a few years now as a way to describe the importance of people, culture, process, decision-making, planning, balance and philosophy above all else when managing the institutional investment process. The best investment ideas in the world are useless without the ability to execute and make rational decisions in real-time. The entire organizational structure wrapped around the portfolio is actually a potential source of alpha yet very few institutional funds spend their time on this angle.

I’ve spent the better part of the past decade forming these ideas and after letting them marinate for a while I’ve finally organized them into my latest book — Organizational Alpha: How to Add Value in Institutional Asset Management.

The study of what makes for a functional or dysfunctional organizational structure is fascinating to me and there’s no shortage of examples among institutional investors. There are many oddities about the institutional investment world.

For instance, even though these organizations and funds manage trillions of dollars in aggregate, it’s still basically a word-of-mouth type of industry. Relationships still matter and who you know can have as much of an impact on getting your foot in the door with most of these funds as anything. Then there’s the element of style points that many of these funds try to involve in the investment process. It’s hard enough to build a lasting portfolio when dealing with such a complex world but many of these funds try to out-do one another by making their portfolios just as complicated as the world is around us. This complexity can have a huge impact on the organization in a number of ways.

Also, there are very few books written on the topic of successful institutional asset management. The absolute bible in this space is Yale Endowment CIO David Swensen’s Pioneering Portfolio Management. The problem is that this book was written by the Warren Buffett of the institutional fund world. I would estimate that 99% of institutions should shy away from trying to emulate what Swensen does because he is the master at his craft.

So I wrote a book that should be useful for the 99% of institutional investors who don’t have all of the resources, the huge donor base, financial relationships, large investment staff or billions of dollars that the Yale’s, Harvard’s and Stanford’s of the world have at their disposal.

The point of this book is to help institutional investors of all shapes and sizes:

  • Develop a better decision-making framework for their investment programs.
  • Understand the group dynamic at play in the institutional fund world and use it to their advantage to make more rational choices.
  • Understand who they are — and, more importantly, who they are not — as an investor.
  • Define their investment philosophy and build a goals-based portfolio.
  • Know exactly what needs to be documented in the investment process for successful planning purposes (IPS, investment committee charter, spending policies, etc.).
  • Recognize the pros and cons involved with the different approaches to institutional money management.
  • Discover different sources of alpha beyond investment outperformance.
  • Ensure continuity in their money management process.
  • Realize what it really means to be a fiduciary when overseeing these funds.
  • Gain a deeper understanding of the alternative investment landscape.
  • Choose the right outsourced consultant or advisor to help oversee the management of the portfolio and investment recommendations.
  • Develop a comprehensive framework for performing due diligence and monitoring prospective and current investments.
  • Avoid the crippling mistakes that many institutional investors have been making consistently over the years.
  • Understand what really matters in terms of their investment program and portfolio management.

I tried to keep this book relatively short (it’s only about 80 pages or so) and only include what is truly necessary to comprehend what it takes to manage a professional institutional investment program.

This book is geared towards institutional investors but I think the ideas here translate well for individual investors or anyone working in a group dynamic looking to make better decisions.

You can find the book here:
Organizational Alpha: How to Add Value in Institutional Asset Management