The Value of a Dollar

Ok people, I’m temporarily out of retirement for a mere moment because today on Twitter I got called out for letting our team stay in crappy hotels (when one posted a pic of their Sunday evening of ramen noodles and 3 star hotel décor), it was suggested that we were not taking care of them when made to travel for work and that we were perhaps not being generous enough to staff. This is a fair observation and question, but let me respond.

I’m not going to write about the fund management model, Lants will do that, however I thought it was probably worthwhile explaining why we have such a frugal approach to expenses associated with funds management.

The first is a very practical reason — the lower our costs, the lower the fees our investors pay to us to manage the fund. The management fees a fund manager charges is supposed to be just enough to run the fund — fund managers shouldn’t be profiting off of them (that’s why the performance fee acts as an alignment incentive), and investors only care about return on investment net of fees. So, charging higher management fees, just make it that much more challenging to deliver competitive returns, which makes our job infinitely harder. This job is hard enough, without making it harder via something we have complete control over.

The second is a cultural one — as a fund manager who ‘grew up’ managing capital of friends and family, before managing capital of sophisticated individual investors and now institutional capital, we are very cognisant of the value of every dollar and try to ensure that we don’t waste a single one. We know how hard our investors worked for every dollar, and the disrespect we would be demonstrating if we spent those dollars on fancy hotel or dinners. We want people in our team who are in this game not because it’s a ‘lifestyle job’ but because they are here for the long term, are motivated by building things and solving hard problems and are aligned to make our investors money. This means keeping fees as low as possible, and the team being incentivised when and only when we make our investors money.

Some may wonder then, whether we will be able to keep good people with this approach. Well, our track record says differently — over 11 years we have only had one staff member churn out of our team, however, as usual, time will eventually tell. We do agree that generosity to staff is an important retention tool, but we do this in other ways, we are socially, culturally, opportunity, autonomy and equity generous, in addition to many others mechanisms. If our team leave because another fund will pay them a higher salary, or let them stay in fancier hotels we are ok with that. They are not the right people to be custodians of our investors capital. Perhaps this sounds harsh, but look at it through the lens of how you view politicians who are using your hard earned capital via taxes for business class domestic flights, life-long parliamentary pensions far exceeding the standard pension etc. Don’t you want someone who is in parliament because they are driven to be of public service and are incentivised accordingly, not someone who is there because they get a private driver. Or perhaps everyone is too cynical to believe that’s even legitimately possible now in politics because the good ones are weeded out by the aggressiveness and viscousness of the political stage.

I think alignment and purpose is woefully underestimated these days, and lack of it or accountability for it is responsible for much of the bad corporate and personal behaviour. Our approach above is one of our small ways of combating this and preventing this type of cancer becoming malignant in our business.