“The investment services firm of tomorrow will necessarily have to leverage knowledge and accountable business behaviour. The former will be vital to growth, the latter to survival”
An accountable investment bank
The investment services firm of tomorrow will necessarily have to leverage knowledge and accountable business behaviour. The former will be vital to growth, the latter to survival. The traditional approach to investment banking in the broad sense (brokerage, advisory and asset management) has been dominated by the tension between the client and the deal. The extent of the triumph by the latter over the former has sparked a level of mistrust which has eroded the foundations of the organisations basing their business on agency relations. Thomas Hobbes, with his deep knowledge of human nature, had warned us of these dangers over three and a half centuries ago. Chapter 25 of his celebrated work Leviathan, dedicated to the giver of advice or counsel (to which end advisor should be deemed to include the manager), criticises the transactional approach when it says that “exhortation is directed to the good of the person who gives the advice, not of the person who asks for it,” inevitably going on to conclude that “it follows that those who exhort where they have been required to advise are corrupt advisors.”
However, Hobbes does not stop there. He continues on to define what he considers a good advisor-manager-consultant. The first requirement set down for a good advisor is that “his purposes and interests must not be inconsistent with those of the person he is advising”, while secondly, and importantly, “an advisor ought to present his advice in such a way to make the truth appear most clearly” as “metaphorical speeches, tending to the stirring up of passions… serve only to deceive the advisee.”
It is clear that trustworthiness in business behaviour was notable for its absence throughout the boom times that preceded this crisis. Now we are learning from and paying the price of this neglect. Trustworthiness vis-à-vis the client (investors and companies alike) means managing their assets or advising them on their strategic development in an independent fashion, with strict control over potential conflicts of interest with the focus on their long-term needs and targets and not on short-term deal-making, as well we have been advised by Hobbes.
Knowledge as a competitive advantage
Hobbes was also prescriptive on this subject: “the ability to advise well comes from experience and long study”. Therefore, a good advisor can and should only dispatch counsel on “matters which he has not only had great experience of but also thought about long and hard”.
Our clients require service underpinned by deep knowledge. In the good old days of investment banking, it used to be said that all a banker needed, in addition to a certain amount of training, was a pencil and phone and a desk. Even today, hard work, personal relations and communication remain important ingredients of what we do, but none of them will be a decisive source of competitive advantage in the future. This will rather be found in knowledge.
Some time ago, at N+1 we decided to exit any business in which we could not build knowledge of utility to the client. In the asset management arena this has led us to focus on direct alternative investments where we have built powerful and highly specialised teams with extensive track records in their respective areas of expertise. The primordial direction we are taking right now is one of international expansion of the management of those asset classes where the homogenous nature of the ‘underlying’ so permits. At N+1, this is the case in alternative energies and rental properties. Windmills and buildings are windmills and buildings all over the world; the only thing that varies is regulation and local market conditions.
In the financial and strategic advisory businesses, we are building a European platform which already encompasses 110 professionals located across the UK, Spain and Italy (and which we hope to expand in the near future to France and Germany). Our model for sharing our know-how with the client is underpinned by sector specialisation and multi-local knowledge/service. A construction sector client in Leeds, for example, can tap into the experience and knowledge of our advisors and analysts in the five main European markets (and through our alliances, this reach can be extended to other countries such as China, India, Brazil and the US), at all times hand-held, however, by our team on the ground in Leeds or another UK city. Hobbes himself praised the merits of specialisation: “A man who does his business with the help of many prudent advisors, consulting with each of them separately, in private, does it best…”.