creativity is key driver of alpha

‘Creativity’ is essential to successful investment management. ?Ironically, it is seldomly considered in the manager assessment process.?Instead, ‘skill or luck’ is the deep-rooted conceptual framework used for assessing past performance and understanding whether a manager has the potential to create alpha (and can justify fees). ?Though a handy heuristic, viewing managers through a lens of skill versus luck oversimplifies a complex reality. ?It confines the parameters of analysis to a false binary and thereby squeezes out the essence of how many (though arguably not all) managers might create alpha. ?Alongside the rigorous application of skill and a heavy dose of luck, successful investment management requires creativity. ?

The creation of alpha inherently involves the ability to make investment decisions against consensus and away from the ‘herd.’?It’s about seeing (combined with a willingness and ability to act on) opportunities that others don’t. ?It is about thinking different. ?It is combining one and one to get three.?

So how does one find creative managers, assess these factors and its potential to create alpha? I believe this is a vitally important question that is only coming more urgent to address. One way of thinking about it is as follows - if creativity is in fact about thinking different and understanding things in ways that the herd doesn’t, find people with experiences and knowledge that are unique and differentiated to either hire (as an asset management company) or allocate capital to (as an investor).?Fundamentally, it is about gaining access to conceptual frameworks that enable a new, differentiated understanding of the world, one that exposes or indeed creates new opportunities.? An understanding gained through unique educational backgrounds and life experiences can disrupt established, staid patterns and lead to insights. ?With an equivalent level of skill (and assumed access to luck) the ‘creative’ manager has an edge.?