Rattner: Firing underperforming fund managers rarely creates value compared to holding them
Steve Rattner · Steve Rattner – Overseeing Michael Bloomberg's Family Office (Capital Allocators, EP.113) · Nov 18, 2019 · at 38:08
Steve Rattner, Chairman and CEO of Willett Advisors (Michael Bloomberg's family office), reflects on manager selection and the behavioral traps of terminating underperforming fund managers.
0:00 / 0:44exact quote · 44.4s
720p mp4 · rendered on demand · StarZero watermark
“One of the things that I force the team to do once a year is go back and look at our terminated managers, because it's easy to fire a manager. And in most firms, you fire a manager, nobody's ever going to ask you again, well, how did that manager do? Did you make the right decision or not? And I believe we have to live with those kinds of decisions. And so we very methodically go back and look at our terminated managers. And I would say it hasn't probably cost us a lot of money to terminate managers. But it hasn't made us a lot of money. In other words, if we had simply stuck with the group, because it is, it gets back to this performance persistence thing, and there is a huge temptation that I try to resist, but I succumb to it like everybody else who's human, to fire a manager when you really feel like the bottom is falling out, but that may be the absolute worst moment to fire a manager.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Steve Rattner
Rattner: A company's primary fiduciary duty is to responsibly serve its shareholders
“And I'm almost with Milton Friedman, who wrote that famous New York Times Magazine piece in 1970, which said that the job of a company is to go out and make money ethically, legally, responsibly, but ultimately to serve the shareholders.”
Rattner: 2009 auto restructuring nearly collapsed over Sheila Bair's FDIC
“Particularly the FDIC, which was run by Sheila Bair, who was particularly difficult. And this caper, as my deputy Ron Bloom used to call it, almost fell apart over that problem.”
Rattner: Harvard is still untangling illiquid investments it shouldn't have made
“What a lot of these firms or institutions have is a lot of illiquid stuff. Harvard is still trying to untangle some of it that they probably shouldn't have done”
Rattner: Over-diversifying across 100 fund managers guarantees index-like mean reversion
“If you do the math, right, a firm has, let's just say, a hundred managers. So each manager has one percent of your capital on average. And each of those managers has 20 top positions. What is that? Five basis points of your capital is in some given position. N…”
Rattner: Endowments should use a specialist model rather than generalists
“I believed in the specialist model. The idea that you have five or six smart senior people, and they all go off and do whatever they feel like doing, and often they're doing different things from one investment to another, it didn't make perfect sense to me.”
Rattner: Private equity still delivers a return premium over public markets
“I do think the return premium Which, while it's smaller now, probably, certainly than it was, is still there. I think the way that private equity guys and ladies think about driving performance, not getting caught up in being a public company, being very comme…”