The Magic When Leaders Meet Fact-to-Face
For many years I have been partnering with an organization to provide leadership training for many different industries.
As with any long-term collaboration, we sometimes disagree or view the customer challenges from different perspectives. If we end up being on opposite pages of thinking, we talk it through to come up with a solution that we both could live with. But recently things started to change. There was a clean sweep of leadership in the organization and before I realized what had happened I started dealing with an entire new group of “names.”
I describe the new leaders as “names” because that is all I had to go on. I had no faces to connect to the “names”. The once close relationship I had enjoyed with this organization seemed to be fading and I became very frustrated.
What was missing here? How could I get to know these new leaders and build a relationship that I once had with this organization?
It then hit me. I needed to meet these new leaders face-to-face for them to see who I was and what made me thrive and for me to get to know what excites them.
It took awhile to set up a date because the new leaders all wanted to meet me. I actually became concerned at one point as they kept changing the meeting day. But when I arrived they all greeted me with smiles and apologized for changing up the date as they all wanted to be available to connect with me face-to-face.
The magic began.
As we sat around a conference table listening intently to what everyone had to share, it became clear that we all cared about each other. They wanted to hear about my experiences with the previous leaders and what I would change. I was thrilled to hear about their new vision and mission. I walked out feeling excited and looking forward to our follow-up plan to involve the other trainers.
What changes when leaders meet face-to-face?
WALLS ARE BROKEN DOWN
The moment I entered their new facility (and yes they had just moved) I felt a calmness come across me. I no longer had to visualize where they all worked or how professional the new offices were. I was shaking hands with the partners I only knew from our emails and phone calls. What a relief. The tension in our relationship started to melt away. They were all amazing and put me at ease immediately.
REAL EMOTIONS CAN BE SEEN
For someone like me who finds it helpful to view people’s facial expressions and body language, there is nothing more important than seeing the non-verbal cues. When emotions are revealed in real time:
- Leaders can react more appropriately
- Leaders don’t have to guess or put their own spin on how someone else feels
- Communication is clearer and more open
- Honest relationships can be formed
AUTHENTIC LEADERSHIP IS REVEALED
Before entering into this face-to-face situation, I wondered what these new leaders actually knew about me. I tried to imagine what their leadership skills looked like. When we can’t put a face to an action or decision we sometimes jump to conclusions. And not always positive ones. I could hear from their thoughts and words how committed they were to working together. They were finally real leaders to me.
A FUTURE COLLABORATION CAN EMERGE
After spending a few hours sharing and dreaming and laughing, it became clear that we were ready to move full steam ahead with our collaboration. When we could banter back and forth and show each other how valuable we each meant to one another, the future seemed limitless. We were energized to have focus groups with the rest of the trainers and cultivate a true joint venture.
How have face-to-face meetings helped your leadership grow and change?
Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds
Written by: Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies, J.P. Morgan Asset Management
A quiet revolution is taking place in the alternatives world. The idea of alpha/beta separation has finally made its way from traditional to alternative investing. This development brings with it a more transparent, liquid and cost-effective approach to accessing the “alternative beta” component of hedge fund return and a new means for benchmarking hedge fund managers.
The good news for investors is that the separation of hedge fund return into its components—rules-based alternative beta and active manager alpha—has the potential to shift investing as we know it. These advancements could democratize hedge funds and, at long last, make what are essentially hedge fund strategies available to all investors—even those who aren’t willing to hand over the hefty fees often associated with hedge fund investing.
A benchmark for alternatives
With respect to traditional equity investing, we have long accepted the idea that there is a market return, or beta—but this hasn’t always been the case. Investors used to assume that to make money in the stock markets, one needed to buy the right stocks and avoid the wrong ones. The idea of a market return independent of skilled stock selection seemed ridiculous to most market participants. Yet today, we would never invest in an active manager’s strategy without benchmarking it against its respective beta.
Interestingly, hedge fund managers have been held to a different standard. Investors have been much more willing to accept the notion that hedge fund strategy returns are pure alpha, and that their investment returns are based entirely on the skill of the fund manager. That notion explains why investors have been willing to accept a “two and twenty” fee structure just to access what has been perceived as one of the most sophisticated and powerful investment vehicles available.
In thinking about the concept of beta, consider its precise definition—the return achievable by taking on a systematic exposure to an economically compensated risk. In traditional long only equity investing, the traditional market beta has been further refined as a number of other risks have been identified that are commonly referred to as “strategic beta.” These include factors such as value, momentum, quality and size. But no one ever said that these risk factors must be long-only.
Over the past decade, as more hedge fund data became available, academics began to disaggregate hedge fund return into two components: compensation for a systematic exposure to a long/short type of risk (alternative beta), and an unexplained “manager alpha.” What they found is that a significant portion of hedge fund return can be attributed to alternative beta. That fact has turned the tables on how we look at hedge fund return. With the introduction of the alternative beta concept, hedge fund managers will have to state their results, not just in terms of total return, but also as excess return over an alternative beta benchmark.
Merger arbitrage—an alternative beta example
The merger arbitrage hedge fund style can be used to illustrate the alternative beta concept. In the case of merger arbitrage, the beta strategy would be the systematic process of going long every target company, while shorting its acquirer. There is an inherent return to this strategy because the target stock price typically does not immediately rise to the offer price upon the deal’s announcement. This creates an opportunity to purchase the stock at a discount prior to the deal’s completion. The premium that remains is compensation to the investor for bearing the risk that the deal may fail.
Active merger arbitrage managers can add value by choosing to invest in some deals while avoiding others. Therefore, their benchmark should be the “enter every deal” strategy, not cash. In fact, the beta strategy explains the majority of the return to the average merger arbitrage hedge fund. And it doesn’t stop there. Other hedge fund styles that can be explained using alternative beta include equity long/short, global macro, and event driven. Note that the beta strategy invests in the same securities, using the same long/short techniques as the hedge fund strategy. The difference is that the beta strategy is a rules-based version that can become the benchmark for the hedge fund strategy. After all, if a hedge fund strategy cannot beat its respective rules-based benchmark (net of fees), an investor may be wiser to stick to the beta strategy.
Implications for investors
What does all this mean for the end investor? Hedge funds have traditionally been the domain of sophisticated investors willing to pay high fees and sacrifice liquidity. Alpha/beta separation in the hedge fund world means that investors can finally choose whether to buy the active version of the hedge fund strategy or opt for the passive (beta) version. Hedge fund strategies can be effective portfolio diversifiers. Now, through alternative beta, virtually all investors can access what are essentially hedge fund strategies in a low cost, liquid, and fully transparent form. For investors who haven’t had prior access to hedge funds, this could be welcome news. Not only can investors look at an active hedge fund manager’s strategy and determine how it has done compared to the systematic beta equivalent, they can also invest in ETFs that encapsulate these systematic strategies.
When looking at one’s traditional balanced portfolio today, there are plenty of questions around whether the fixed income portion will achieve the same level of diversification it has provided in the past. After all, with yields still low, there is little income return. Additionally, the capital gains that came from interest rate declines are likely to reverse. With fixed income unlikely to adequately fulfill its traditional role in portfolios, there is a need to find an alternative source of diversification. This is where alternative strategies may help. For investors seeking to access diversifying strategies in liquid and low-cost vehicles, alternative beta strategies in ETF form are one option.
Looking for an alternative to enhance diversification in your portfolio?
For investors looking to further diversify their overall portfolio, JPMorgan Diversified Alternatives ETF (JPHF) seeks to increase diversification and reduce overall portfolio volatility through direct, diversified exposure to hedge fund strategies using a bottom-up, rules-based approach.
Learn more about JPHF and J.P. Morgan’s suite of ETFs here.
Call 1-844-4JPM-ETF or visit www.jpmorganetfs.com to obtain a prospectus. Carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read them carefully before investing.
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