Motivation as a performance driver

After 18 months of joint research, the State Street Center for Applied Research and the CFA Institute found a statistical relationship between motivational factors and investment returns. Long-term performance, client satisfaction and employee engagement are, according to their research outlined in Discovering Phi - Motivation as the Hidden Variable of Performance, affected by the purpose of investments as well as manager's habits and incentives.

Calling the motivational factors “Phi”, they are assumed to measure an investment manager’s ability to produce performance driven by purpose. Fund manager’s motivation is said to matter, as it drives their behaviour and action. Based on academic theories, State Street and the CFA Institute assessed survey respondents regarding:

  • Their purpose, i.e. what drives them to perform;
  • Their habits, i.e. why they continue to work as investment managers;
  • And their incentives, i.e. if they think of their work as a job, career or calling. 

Only 17 percent of asset managers scored high in Phi, i.e. score well in all of the above three categories. However, 53 percent scored either low or had no Phi at all, i.e. did not have a purpose, habit and incentive to remain investment managers.

Surveying the clients of professional investors too, State Street and the CFA Institute found that each point increase in Phi increases the chances of excellent client satisfaction by 55 percent and of excellent organisational performance by 28 percent. Building up a purpose, habits and incentives for investment managers is thus crucial for asset management companies and their clients. The research paper outlines some ways to improve Phi, but research on the quantification of motivation as a performance driver of fund managers is still at an early stage.