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How Can a Hedge Fund

Manager Help an MSB?

 

Ian Morley

Chairman

Wentworth Hall Consultancy

· Growth,Finance,Leader Interviews

“Growth is more complicated in a MSB than an SME because you have to find the right balance between the entrepreneurial talent in an SME and the administrative roles required to keep a larger business on track.”

If you go to the gym and work out, you reach a level where you plateau and you don’t seem to get any fitter. To get better, you hire a personal trainer and they push you further – you always feel like you’ve had a good workout and you get even fitter. It’s the same with an MSB: you reach a certain point, and then you’ve got to bring in new energy and talent to run a larger business.

Entrepreneurs can get tired and bored running a larger business because they have to deal with admin, legal issues and bureaucracy. Sometimes the solution to the success of an MSB is to buy the founders out – other times it’s to skill them up and help them transition into new roles.

You need to keep the bureaucratic parts of the business streamlined. It’s a fine piece of management, ideally from the board, to turn that entrepreneurial spirit into focus rather than letting it run all over the place – you can’t follow up every single idea.

Don’t ignore internal talent

You’ll often have a lot of internal talent that people ignore. So, tap into the resources you have rather than the ones you don’t have. Everybody thinks the outside expert knows much more than the inside people – it’s rarely true. The people inside your business do it every day and they know what’s wrong.

The best thing to do is identify the key people in your business – the ones that offer you vision and growth and hard work – and then try and incentivise them and give them roles, time and space to allow them to work to the benefit of the business rather than letting their ideas fester and become gossip and resentment.

In larger businesses, the talent can get buried too far from the board and the management team. MSBs are perfectly placed to make the most of their own talent.

How can a hedge fund manager help MSBs?

When we set up the Alternative Investment industry, we were looked down upon as a destructive part of the market. We are seen as short-selling stock and crippling growth companies. From our perspective, this isn’t true. Often, senior managers and directors know their company value has no relationship to their profit and loss, but no senior executive is going to give a message to the market that devalues their
own stock.
 
It’s the job of the hedge fund manager to say, “We don’t believe this”. We take up an arbitrary position within a market, for example; we may feel that Airline A is overvalued and Airline B is undervalued, so we will buy one and sell the other. We are judging one against the other based on the relative value of the businesses because we want to protect our investors’ money.

You can’t hide reality. Rather than not talking to the hedge fund managers, they should be the first ones you talk to because they will be able to give you a far better view of the market and much more information about your competitors than anyone else. They look at companies objectively – either from a fundamental or some algorithmic point of view. You can get very valuable information not only about the market but also about how your competitors see you.

What do you look for when you meet a new CEO?

I look at what kind of people they are. How do they relate to their colleagues? Do they do in reality what they say? If you meet the CEO and their team, and the CEO says, “we have an open team here and everyone speaks their mind” but then he talks for an hour uninterrupted, I would say it’s likely they are lying.

If I see behaviour which contradicts the narrative, I would think something was not right. I’d need to have one-to-ones with direct reports to see what the underlying issues are.

How to deal with new innovators in your industry

Closing your eyes to technological change and disruptors is dangerous. So you need to look at those. If you’re General Motors and someone comes along, like a Tesla, you may ignore them – or you may think, “bloody hell, they’re doing things that we should be doing, so we need to learn from them and adapt.”

We don’t need to buy the IP, we need to ensure the lens we view the market through allows us to take advantage of these disruptors and learn from them. This is especially important for MSBs because they don’t have the cash to buy up every new innovation in the market, and they could be the first ones to be impacted by it.

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