If you ask Rob Prugue what the most important asset is in any company, he’ll say “the people.” That may sound like a basic truism at first glance, but the former Lazard Asset Management chief executive is still amazed at how little that’s discussed in the business of wealth management.
Prugue came to Australia from Washington in 1989. He describes the time as the nascent period for Australia’s wealth and investment management industry, with the superannuation guarantee just round the corner. Almost immediately, he found himself in the business of determining which companies worked best from an investment perspective – a skill he took to his next role as head of international equities at State Super Financial Services.
Looking inwards
What he found interesting in these roles and liaising with industry peers was that the same metrics one would apply to a potential stock were seldom applied to the investment managers themselves. Echoing Warren Buffett’s quote that “assets go up and down every day on the lift,” it struck him that the real distinguishing factor in any wealth business was how people were managed and nurtured.
This came into even starker focus during the Asian financial crisis, when Prugue found himself in an entirely different role, working as head of research at asset consulting firm van Eyk. “I never saw myself in asset consulting,” he says, “but all of a sudden I’d gone from coming from the point of view of manufacturing to focusing on the consumer.”
In searching for the “right” managers, he realised that the basic principles of funds management – picking good stocks, monitoring their profits and losses, identifying opportunities in the market, examining the management culture and so on – were more or less universal.
“But that’s just the prerequisite,” he continues. “That’s not what drives a good fund manager. A lot of managers ran by creating metrics of what defines good or bad in investments, but you’d be surprised by how few actually applied those same metrics to their own business.”
Being open to challenges
That’s why, when the time came to implement what he learned over his formative years, Prugue was determined to take those lessons to heart. It wasn’t just about the cliche – hiring “the best people” – it was also about those people’s willingness to challenge existing ideas (including his own) both when buying new companies and selling ones that were already in the portfolio.
Because of this, Prugue doesn’t believe in the idea of “key person risk” in active investment management – i.e., that the success and culture of a particular manager is fundamentally determined by one star stock-picker: study the culture and the personal dynamics within the firm.
“The reality is,” Prugue says, “what makes a ‘great fund manager’ is getting it right 55% of the time. I don’t know about you, but I wouldn’t want a surgeon who lost 45% of their patients or a lawyer who lost 45% of their cases. So if that’s the case – if even the best managers get it wrong – providing a good service to investors can never come down to a single individual. It’s based on a team; complementing crew sets and people willing to ask, ‘Have you considered this instead?’”
Staying humble
He believes these principles can apply to any business, and serve as a warning to any company that tries to succeed by investing all of its cultural and intellectual capital in one person.
“You have to be humble about these things,” he says. “I’ve had the privilege of travelling all over the world, both as a young lad and then later as part of my career. And of all the beautiful places I’ve visited in the world, not once have I come across a statue of a fund manager.”
Rob will be discussing these ideas – and many more involving his experiences and expertise in wealth and investment management – as the latest contributor to No More Practice. Look out for his pieces in the coming weeks!
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