Heroes and victims: fund manager sensemaking, self-legitimation and storytelling

Abstract

This paper explores how fund managers continue to do their job when on one level they know they cannot all be exceptional. They do this by telling stories, constructing satisfying narratives to explain to themselves, as well as others, why their investments work out and providing equally plausible reasons for when they underperform. Using the story typology of Gabriel (2000. Storytelling in Organizations: Facts, Fictions, and Fantasies. Oxford: Oxford University Press.) – epic, tragic, comic and romantic, we explore two sets of fund manager narratives. First, we analyse the transcripts of interviews with 50 equity fund managers in some of the world's largest investment houses. Second, we examine a similar number of published fund manager reports to their investors. In both cases, we show how storytelling is used by asset managers to make sense of what they do and justify their value to themselves as well their clients and employers. Similar processes are employed in both sets of narratives, one verbal and informal, the other written and formal. Our study serves to highlight how storytelling is an integral part of the work of the professional investor.

Keywords:

• fund manager interviews
• investment performance
• story genres
• poetic tropes
• narratology

Acknowledgements

The authors are grateful for helpful comments from, and encouragement of, Andrew Brown, Yiannis Gabriel, John Holland, Mike Jones, Sven Modell, Gulnur Moradoglu, Chris Olivola, Dylan Thomas and David Tuckett among others and by the participants at the Behavioural Finance Working Group Conference at Cass Business School (2011), the British Accounting and Finance Association Conference (2013), the Financial Reporting and Business Communications Conference at the University of Bristol (2013), the Asia-Pacific Interdisciplinary Research in Accounting Conference in Kobe, Japan (2013), the Conference on Discourse Approaches to Financial Communication in Ascona, Switzerland (2014) and research seminars at Cardiff University, Bristol University and the University of Essex. Last but not least, we are grateful for valuable comments from the editors and two anonymous reviewers of ABR.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Arman Eshraghi http://orcid.org/0000-0002-7406-1725

Notes

1. In addition, fund managers are more likely to underperform on average than outperform equity indices. Standard and Poor's (2013), for example, report that over the five years to the end of 2012, the S&P 500 outperformed 75% of actively managed domestic large-cap mutual funds, with equivalent S&P indexes outperforming 90% of mid-cap funds and 83% of small-cap funds.

2. For example, Jain and Wu (2000) show how mutual funds are sold to potential clients on the basis of their managers’ previous track record and advertised as such even though, if anything, such funds subsequently underperform.

3. Or as Goffman (1959, p. 8) explains, ‘in their capacity as performers, individuals will be concerned with maintaining the impression that they are living up to the many standards by which they and their products are judged … [by] engineering a convincing impression that these standards are being realized.’

4. Importantly, such legitimising attempts are distinct from, and more subtle than, Scott and Lyman's (1968) conceptualisation of excuses and justifications. Here justifications are accounts in which one accepts responsibility for the act in question but denies the pejorative quality associated with it, and excuses are accounts in which one admits that the act in question is bad, wrong, or inappropriate but denies full responsibility.

5. In this context, as Maclean et al. (2012) point out, the listener, that is, the interviewer whose approval the interviewee seeks to enhance self-esteem, also has a direct role to play in legitimation dynamics as the necessary ‘fellow traveller' or ‘Other' required for sensemaking. Also see Brown et al. (2008).

6. Fund managers are tied together within the general organisational narratives of the market and their investment houses. Drawing on Lyotard (1979), we term such broad sensemaking devices ‘meta-narratives’. Lyotard argues that such grands récits are used to legitimate power, authority and social customs and are designed, on one level, to help people feel better that there is some order in the world.

7. 53 interviews were conducted in total but one was incomplete, a second respondent invested in bonds and a third was a buy-side analyst.

8. The 11 quantitative fund managers in our sample equally told stories, but in their case these tended to be about their computer models rather than individual stocks. Not all respondents provided three examples of each type.

9. Fund manager reports are archived online in the SEC EDGAR database which is freely accessible to the public. Therefore, drawing on formal reports written by the interviewed fund managers would have compromised their anonymity following a textual query in an online search engine. In addition, since only a small subset of our fund manager respondents ran US-based mutual funds, the number of formal reports we could have analysed would have been very restricted.

10. This story may also contain dimensions of a third hybrid genre, the epic-comic story with the hero, George Monroe, using irony and pathos to explain his understanding of the business, for example, ‘I'm not afraid to get into the trenches … and see what they order.'

11. Bingham assigns a similar role in his narrative to the company management whom he trusted to deliver but eventually let him down.

12. It is of course important to recognise that fund managers may be organisationally constrained and also motivated to exercise some level of self-censorship in the way they communicate to their investors (Holland 2006). However, as Goffman (1974, p. 478) points out,

during the most formal and official of occasions, occasions when an individual speaks for a prestigious organization and provides information others will need in coordinating their acts, he may still, nonetheless, intersperse project-relevant statements with informalities of all kinds – greetings, joshings, irony, and the like.

13. Such narratives, particularly when absolute (but not relative) performance is positive, are relatively complex in structure. Jameson (2000) finds that comparable narratives in her sample typically employ a nonlinear structure, contrast narrators to dramatise ideas and lead readers to participate in constructing the investment story themselves. In this way, investors can directly identify with the trials and tribulations of the fund managers, and are thus mollified.

14. It will be noted, in passing, how the fund manager is able to stress his ‘noble' qualities by his honesty and openness in directly acknowledging his poor performance and his commitment to bringing his shareholders’ returns back to their historic levels.