Manage Like a Poker Star…

You don’t have to play much poker before you eventually hear someone around the table say, “Oh, poker is all luck anyway!”, often just after they have lost all their chips to a better player.  The same is often claimed about successful managers: “She was just in the right place at the right time” or “Oh, he knew the boss”, or “Well you know, you need money to make money”.

So why is it then that so many of the same players on the World Series of Poker Tour often end up at the final table?  Are they just luckier? Similarly, why is it that so many successful managers share many of the same key characteristics?

To succeed in professional poker or in management, one of the most important elements is passion.  You must have the hunger to play, or to manage, and to constantly improve your craft.  Like a poker player may choose a table based on the calibre of the players, the size of the blinds or buy-in, or whether it is a cash game or a tournament, a good manager should choose a sector, company, or position that best suits their interests, abilities, and limitations – recognizing that their ideal management role may change as they gain experience over time.

Confidence is equally important.  Do you have the guts to call your boss’ “bluff” when he says there is no funding for your project, or employee training, or do you “raise him” by building a better business case or identifying where costs could be cut elsewhere, and then revisit the topic.

To aspire to poker or management greatness, one must start by knowing the rules – both written and unwritten. Watching a friend “take back their raise” or “unfold” around a kitchen poker table can be amusing (the first few times), but such a lack of poker etiquette would not go over nearly as well at a professional poker table in a Las Vegas casino.

It also helps to have a few key skills that distinguish you from the crowd.  The best Texas Hold’em poker players, for example, particularly those that first cut their teeth playing poker on-line, are often math wizards, able to continuously re-calculate their odds and “pot odds” from the “pre-flop” to the “river”, and adjust their play on the fly.  They are constantly reading the cards, the other players, and the dynamic of the table, but also have a healthy dose of intuition and creativity so as to not become too predictable.  They are patient and disciplined, usually aiming to show emotion only when it helps their hand, even in “high stakes” situations. 

Strong managers also constantly adjust their leadership style, approach, and decisions to the specific structure, culture, policies, priorities, and pressures of their organization, as well as the strengths, weaknesses, and personalities of their superiors, peers, and subordinates. They are constantly evaluating the “value of their hand” within the organization, which “pots” they are prepared to play, their “position” at the table, and actively scanning for the “big stacks” that hold most influence within the organization, either to ensure the success of one of their key projects, or to look out for their longer term career progression.

Managers too tackle issues based on their best assessment of the risks, the number of “outs”, and the potential payback.  Like a good poker player is better judged by the hands they fold then the hands they play, a manager must also show discipline and self-control, and even sometimes fold “pocket aces” to an individual issue or employee, to win the game for the team or the company.  They are willing to check their emotions at the door and put on their “poker face” as required.

And if this all just seems a little too prescriptive, it is important to note that good managers, like good poker players, can come in all shapes and sizes, and there are always exceptions to the rule. Some “loose” poker stars play more starting hands than their “tighter” opponents, but neither of these approaches has proven better than the other, as long as one adjusts it well to their situation. It is really up to each individual to decide their own player or management style.  Are you the flamboyant hoodie and sunglass wearing type or more the person that likes to blend in with the crowd?  Once armed with this keen self-awareness of who you are and who you want to be, don’t “sit out” the next interesting management opportunity, go "all-in".

Author: Lenny Wall, P.Eng, MBA

Measuring Trade Efficiency

My Investment Operation is scalable; or is it?

In the example below, both COOs believe they are doing a great job because they are supporting the growth of the business. A deeper dive into the data indicates that only one is actually improving efficiency.

The company on the left is supporting it's growth by adding expensive headcount, whereas the company on the right has supported the same growth while keeping headcount flat. They achieved their efficiency targets by measuring it, setting performance goals and achieving those goals by replacing antiquated manual processes with automated exception based tools.

If you are still running your investment operation without good metrics and/or if you are still running a very manual shop, it’s time for a change. For a free consultation, please contact Wall Consulting Group at info@wallconsultinggroup.com

Improving Trade Efficiency

Recently over lunch, a trader for a large pension plan said, “The system breaks when we trade more than 100 trades a day.” After asking a few more questions, it became obvious he was suffering from many of the same common investment operations bottlenecks that handicap many traders and he needed help. The lunch went well beyond our scheduled time as we dived deep into the trade lifecycle and identified many opportunities for improvement.

 

Bottlenecks to Trade Efficiency:

Trade Capture & Execution:

Ticket creation in the Order Management System (OMS) is not tied to an Execution Management System (EMS). This introduces duplication of effort to input and execute separately, additional effort to reconcile, as well as increased risk of errors. Often if traders execute orders over the phone and then backfill in the OMS later, they can make an error on the backfill because it essentially feels like a clerical exercise at this point; instead of a value added exercise to initiate the trade.

Trade Confirmation:

Often this process is still very manual and is completed by phone and email. This is not scalable and doesn’t work well across time zones. The result is that many trades are not being confirmed until at least one day after trade date, introducing operational risk; especially if the trade was backfilled incorrectly after it was executed, as per above.

Trade Settlement:

Trade Settlement automatically starts at a disadvantage when the capture, execution and confirmation processes are not optimized. The risk of an error still being in the cycle is higher because the confirmation may not have happened as timely as it should have. Additionally, the process of manually monitoring settlements with custodians/prime brokers requires significant effort.

 

The Solution:

Engage in an end-to-end review of the investment process with an investment operations expert to help identify bottlenecks and opportunities to use some of the tools available to solve these problems. We have extensive experience in architecting and delivering trade efficiencies across all asset classes and a broad selection of technology platforms.

Trade Capture & Execution:

Move to a single point of capture and execution. Using an OMS/EMS that communicates directly with your brokers electronically eliminates duplication of effort to input and execute separately. It also eliminates the need to reconcile and reduces the operating risk of an error on the input, because the trade inputted is the trade executed. There are lots of systems and tools that accomplish this and our experts have worked with many of them.

Trade Confirmation:

The confirmation process becomes better when the capture and execution are combined as above, however adopting an automated confirmation tool is also essential. There are several popular tools available. When you use these tools, your trade goes directly from your OMS/EMS to the tool and the broker goes to the same tool to confirm the trade. The investment operations team only worries about exceptions. With proper management of your brokers to ensure adoption and usage of the tools, it is possible to achieve nearly 100% broker confirmations on trade date with little manual effort. The risk of a settlement error is reduced significantly when the trade is confirmed on a timely basis.

Trade Settlement:

Adopting an industry-standard tool for monitoring settlements should replace manually monitoring trades. Most modern portfolio accounting systems are able to consume secure financial messages from the market, allowing the system to do the work and team to focus on exceptions. Trades flowed automatically from the OMS to the portfolio accounting system with the proper journal entry configured. Then the system watches the market and looks for messages to confirm the trade is matched and to alerts when it isn’t. Likewise, as settlement gets closer, the system automatically settles the trade and alerts of issues. When the trade is settled, the journal entry updates accordingly. Secure financial messages can also be used to reconcile the bank accounts from which the trade is funded; truly giving Straight Through Processing (STP) from end to end.

 

The Results:

Results will vary by organization, however it is possible to support increases in trading volumes by up to 100 times, while still reducing errors and freeing up human capacity. These changes allows investment operations to focus on exceptions and free up time for more value added work.

We recommend metrics and Key Performance Indicators (KPIs) to monitor trade efficiency and quality.  Please stay tuned for our next article on Monitoring Trade Efficiency.

For more information please email: info@wallconsultinggroup.com or call 416.500.1002

A History Lesson in Private Equity Valuations for Limited Partners

Sometimes things have a way of coming full circle. Private Equity Valuations for Limited Partners (LPs) is one of those things.

Throughout the decade leading up to 2008, LPs generally used the published Net Asset Values (NAVs) produced by the General Partners (GPs) of their funds, with little to no extra work.

Then in 2008, a perfect storm of new accounting guidance (FAS157), combined with the financial crisis, introduced a disruption to our industry. We were all adapting to an environment where the accounting standards and our auditors didn’t think it was adequate to just rely on GP values, but no one really had the answer to what best practice should be.

At that time, I was the global head of the alternative investment portfolio administration investor services team for J.P. Morgan. In response to an overwhelming client and industry demand, we held many client meetings, roundtable discussions and even hosted an entire conference to address this topic.

Coming out of that process, we published this best practice article:

Hard-to-Value Assets in Uncertain Times: Fair Value Reporting Best Practices for Limited Partners

It’s humorous to read it in hindsight. Not long after this article was published, the industry came full circle back to where we started, with LPs generally being able to rely on the NAVs produced by the GPs. This was thanks to a Practical Expedient introduced to alleviate the burden facing LPs.

A 360 degree view on Private Equity Fee Transparency

As a consultant regularly interacting with GPs, LPs and Fund Administrators, I find myself cautiously facing the topic of fee transparency head on; particularly in light of the new ILPA best practices.

 ILPA Best Practice on Fee Reporting

On one hand, as a former LP, this new template is fantastic!

The LP community has wanted and needed this for a long time. It makes me happy, since I was part of the team that developed the first ever ILPA templates back in 2004. In fact, in the years that followed, you could find me on many panels at private equity conferences, crusading for transparency; something I still believe strongly in today.

But on the other hand, as a former employee of a small GP with a lean in-house back office and also as a former operations executive in an outsourced fund administration shop, this new report takes significant effort to prepare; particularly the Level 2 content. Adoption may not be easy for GPs who are not using robust FinTech platforms or top tier fund administrators.

Today, in helping my GP and LP clients build and improve their investment operations, I see extra costs being passed back to the LPs in the form of increased fund administration fees, directly attributed to fee transparency.

The irony of paying fees to find out what fees you paid is not lost on me.

I hope, as this template makes its way into common usage, the dialogue it generates may lead to a simplification in practice that still achieves essentially the same result, without increased fees. Until then, kudos to the ILPA for leading this charge.

Problem Solving takes a Fearless and Logical Mind

Leroy Wall, Wall Consulting Group 

One of the best lines from Ridley Scott’s 2015 blockbuster movie, “The Martian” came as marooned astronaut Mark Watney, played by Matt Damon, faces what appear to be unsolvable problems in his quest to remain alive.

Watney’s great line is, “You can either accept [the problem] or get to work. That's all it is. You just begin. You do the math. You solve one problem, then you solve the next one and the next and if you solve enough problems, you get to come home.”

Of course, failing to effectively problem-solve in the financial management sector will not lead to premature death on an alien world, but Watney’s straightforward and logical approach to overcoming what seem to be unsurmountable challenges is worth considering for anyone trying to solve any problem, big or small.

Rarely does anyone know all of the answers when first confronting a big, complex problem.

That can be scary, which is why effective problem-solving requires an appropriate amount of fearlessness combined with logic.

Start by dividing up the problem into what you know and what you don’t know, then begin tackling the unknowns.

That seems simple enough. Use your technical knowledge, education and experience to figure out what you know and don’t know about a problem, and then start applying logic.

Each time you want to take a step forward in solving your problem, assess the probability that you are more likely right than wrong about that step, and only that step. Don’t let the step after that scare you.

Fear is relative, therefore you must establish your comfort level. How confident do you need to be to take that next step? Some people might be comfortable with 80 per cent certainty that they are right while others might need 90 per cent certainty or more. When you determine your own confidence level, take that step forward at a safe pace, allowing for a sober second opinion from a trusted colleague or friend if needed. When you are more likely wrong than right, stay put or step back, reassess and recalibrate as necessary; also allowing for a sober second opinion.

Don’t let fear of failure stop you. Failure is an opportunity to learn, as long as you establish a safe environment for failure and put limits and controls on the allowable level of failure. In this environment, you don’t have to know everything now, each step brings the next step into focus.

Inevitably there will be times when you stop and you simply don’t know what to do next. If you don’t have the answers, you just need to know how to find them. Finding answers becomes easier if you break your big problem into multiple smaller problems and attack them individually.

You should never allow what you don’t know to stop you from moving forward with what you do know. Exploit what you don’t know as an opportunity to make someone else an expert and you the student. You might be surprised by what you will learn.

Cycling through this process over and over eventually moves everything into the known category, and the unknowns just whittle away. Becoming paralyzed by a problem comes from the illogical desire to be self-sufficient and get to a 100 per cent confidence level before each step, which leads to few or no steps being taken.

Let's try this logic on a 6 year-old you are teaching to ride a shiny new bicycle. You know that this child does not yet know how to ride a bicycle. You know that everyone who learns how to ride a bike never forgets. These are things you know. These are things a 4 year-old can comprehend when you explain them. You can also explain that falling down is okay. Everyone falls down when they learn. You can create a safe environment where the child is wearing protective gear, the bike has training wheels, and the child is riding it on a grassy field. Failure is okay, because limits are established and controls are put in place. If fear prevents that child from ever trying to ride that bike, he or she will never learn. The child has to take some level of risk in order to learn. Once the child masters riding with training wheels, then you repeat the process without the training wheels. Then you move from grass to pavement; and so on and so on. 

So when all is said and done, problem solving is like learning to ride a bike: once you learn how to do it effectively, you will never forget it.

Over the coming months we will be running a series of case studies to illustrate some real-life problem-solving success stories. Please share your problem-solving success stories with us; we would love to hear about them.

For more information on Wall Consulting Group checkout our website on: wallconsultinggroup.com and follow us on Twitter @wall_cgi

 

Builders vs. Maintainers

Leroy Wall, Wall Consulting Group

The magnificent grand pianos that grace the stages of concert halls, jazz clubs and music schools are handcrafted by artisans who bend wood, string wire and glue felt to build each instrument. Once the piano builders are done and the finished pianos leave the workshop, it’s up to piano tuners to maintain them; making regular adjustments to ensure they continue sounding the way the builders intended.

In any endeavour, be it providing a musician with a consistently exemplary concert grand piano or providing an asset manager with a best practice back office, there’s a certain harmony in knowing which roles are best left to builders and which are the purview of maintainers.

As well, knowing where you fall on the spectrum of builders and maintainers can help you manage your own career goals and expectations.

Those of us in the investment operations field have likely worked with some great builders and some equally great maintainers. But builders and maintainers are only at their best when they perform roles that are the right fit for their personalities. Leaving a builder in a maintenance role for too long can sometimes lead to boredom and stagnation. Someone with a builder’s personality might need a daily dose of risks and challenges that they won’t face in a maintenance role. Eventually the need for something new trumps all other needs and they tune out and move on. Those piano builders so used to working with their hands and tools to proudly create each unique instrument might not find it so satisfying to spend hours every few weeks monotonously adjusting each wire to maintain the instrument’s sound.

Likewise, putting a maintainer in a builder’s role for too long is likely to create unhealthy levels of stress and anxiety. Imagine the average piano tuner trying to build a piano from scratch. The piano makers at the venerable Steinway and Sons factories famously build the instruments from memory and experience, not a blueprint or plan in sight. Put a maintainer in a builder’s role without a blueprint and you’ll have a person likely paralyzed by fear and slow to make decisions.

Of course, some of the best piano tuners are also technicians capable of practically rebuilding damaged instruments. Similarly, in the world of finance, people are rarely completely just a builder or just a maintainer; they fit somewhere on a spectrum. Roles are also rarely exclusively one or the other; they too fit on a spectrum.

This means it is imperative that when you are designing roles, recruiting talent or motivating employees to achieve success, you need consider not just technical skills, but also personality match for the specific position.

Know where you fit and you will become happier in your career. Know how to define your team members and you will place the right people in the right jobs to be successful.  Most importantly, identify the mismatch when it occurs and fix it right away. Doing that will help you to hit the right chord for success in any endeavour.

For more information on Wall Consulting Group checkout our website on: wallconsultinggroup.com and follow us on Twitter @wall_cgi