Lizard Investors’ Leah Zell on beating the boys (AFR)

Tony Boyd

Chook Roast cannot think of a better way to end 2016 than with an interview with one of the most successful women on Wall Street, who carved out a stellar career in the male-dominated funds management business.

Leah Joy Zell, the founder and chief portfolio manager of Lizard Investors, shares her thoughts on what makes great leadership in an industry characterised by small, high-performing teams.

Her views are of more than academic interest in Australia because she is one of the few leading US fund managers with a product in the Australian market.

Zell is chief investment officer of the Global Small Companies Fund offered by Pengana Capital. The fund has two portfolio managers, Jonathan Moog and David Li.

“I’ve been quoted as saying that fund management companies are really just composed of two elements,” Zell says.

“One is a culture and the other is a compensation scheme, and you have to get them both right. I have seen lots of bad examples and a couple of good examples.”

Four factors of work

Zell says work is about four things: how you allocate responsibility, how you identify authority, how you hold people accountable, and how you reward them.

“Those four elements are the key to leadership of most businesses, but particularly people businesses like asset management,” she says.

“We have a business in which on any given day you can look like a fool or a knave or an idiot.

“It’s extremely important to distance yourself from the emotions and realise that what might upset you tomorrow might turn out to be totally different in a week, and that everyone in the business has a batting average.

“So we are all going to have egg on our face. And so the best managed firms have a methodical and repeatable process that is depersonalised. And that also filters out the noise of the market.”

Zell says small-cap equities are the last refuge of active management in a world increasingly dominated by exchange-traded funds and other index-tracking products run by algorithms and machines.

“ETFs are wonderful for replicating market exposure and protecting you against underperformance,” she says. “But active management is where you go to generate alpha [returns above the index].”

Ego ‘endemic’

Zell has no problem with fund managers having big egos but it is a matter of degree. “Ego is endemic in the business. You need a certain ego to be able to withstand the pressures. The very best people have learnt to manage them and contain them.”

She once worked for a big funds management company and says “it cured me of being part of a large asset management business for the rest of my career”.

“It’s much more fun to manage smaller amounts of money and it’s much more fun to work with fewer people. In that case your focus of competition is vis-a-vis the rest of the world, whereas in the bigger shops there is a tendency for the politics to intrude.

“On the other hand, in smaller shops it’s much more important to get the right mix of people and the right culture, which comes back to my earlier comment, which is a culture of co-operation and a culture where you use the ‘I’ word less frequently than the ‘we’ word.”

Zell’s pathway to funds management was not direct or automatic.

She had just completed her PhD in modern social and economic history from the Harvard Graduate School of Arts and Sciences when her brother Sam urged her to work on Wall Street.

Brotherly support

Sam Zell is a billionaire business magnate who started out in property investment and later won control of a range of businesses in retailing and media.

“I actually think in that case, I was perhaps advantaged because I felt a certain confidence that I would not have felt otherwise.

“You have to derive that sense of confidence to enter an area where you’re not necessarily welcome. I had some support, and it all worked,” she says.

Zell, who features in a book published last year called Women of The Street, by Meredith Jones, says there are good reasons why women fund managers outperform men.

“There’s lots and lots of academic work which shows that women trade less frequently than men. They tend to be more patient.

“Women tend to manage less volatile portfolios and their returns tend to be steadier.”

In recent years, Zell has noticed more women making it to the top of funds management. “There are many, many more women now and they’re finding their role in the larger funds; that’s where they’re making their name, because they’re being given a chance there and I applaud them all.”

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