An elite Persian fighting force and Parisian cabaret dancers have thrived from having successful, repeatable processes. Creating repeatable investment processes that accommodate skill, creativity and accountability rather than relying on star fund managers are more likely to deliver strong long-term track records, says Nick Samouilhan, multi-asset manager, at Aviva Investors.
It is the autumn of 480BC, and King Leonidas of Sparta is worried. Across from him sits the vast army of Xerxes I of Persia, determined to march over him and conquer the Greek homeland. More worrying, at the very front of his enemy King Leonidas can see one of the most terrifying sights in the ancient world: the 10,000 strong imperial guard of the Achaemenid Empire, the so-called “Immortals”.
The Immortals comprised the best fighting men from across the Persian Empire and sported a significant psychological weapon: pure terror. For in addition to being selected for their fighting skills, the soldiers were chosen for a very unlikely characteristic: they were all around the same height. In battle they also wore the same black masks and exact same battle gear, and so all looked exactly alike. This created a fearsome effect with the number of Immortals always kept at 10,000 fighting men. Many others were also held back in reserve. If any fighters fell in battle they were very quickly replaced by an exact replica from the reserves, mid-battle. The result was truly terrifying: a unit that you could never, at least visually, weaken. The Immortals.
Modern fund management is happily less terrifying, though there are lessons that can be learned. Think about funds run by star fund managers. If you invest your clients’ savings in a particular fund, how dependent is the performance on that single individual? If she/he leaves, can they be replaced instantly without any impact on performance? If not, this poses a problem, for investments should be for the long term and dictated by client requirements, not the career paths of fund managers. It is in this light that the increasing move in the fund-management industry, though it is far from universal yet, from star fund managers towards investment processes should be highly welcomed. Simply put, the more process is involved the more repeatable the outcome and, importantly, the more ‘immortal’ it becomes. This need not run counter to individual skill, creativity or accountability. These can all be accommodated in the process. There just needs to be a process so that when one fund manager leaves another can take his or her place very quickly.
The Immortals of Persia are long gone, buried beneath history and desert sand. To see a similar effect today, though perhaps more to do with immodesty than immortality, the Crazy Horse cabaret in Paris has proudly kept the psychology of Xerxes I going. All the girls in the show are the same height; all wear the same heavy make-up and all have the same blonde wigs and outfits. The effect is that the show goes on, night after night, regardless of whether any of the stars leave. The show has been running, uninterrupted and unchanged, since 1951. That’s some repeatable track record.