Thursday, 25 June 2015

Cell culture and hive minds.

One of the greatest realisations I have had on leaving 'normal' life in the city is that life in a large financial institution is much like that of a bee. A bee starts life as a pupa in a cell, fed and nurtured to have only one function that is preordained by said nurturing. Whether it be as a drone, a worker or, by social selection, a queen. Such it is with the modern world of banking.

Once upon a time the banking hive celebrated the individual, the creative spark , the maverick that could accidentally cause positive change. In effect a rogue gene that was needed in the process of evolution to enable the further selective advantage of the organisation. But, correct me if I’m wrong, has the system we now see before us moved from one of natural evolution to a system of clonal genetic selection?

The mavericks and the geniuses that are the spark to spur advantageous evolution seem to be far between. As is the space they are allowed to develop in, if they are even allowed entry. Whereas the creative and IT spaces have nurtured creative spirit, the finance hive has narrowed the comb cell space of speciality to the point where evolution is only driven by top level planning. The populace of workers below are shackled in smaller and smaller pigeon holes of speciality that has restricted each participants view of the big world to that of a specialist cog in the machine. A machine that they are not expected to shape, form or evolve in, rather just provide function.

The quantification of financial function and the repression of individual thought through management planning, HR backward drawn matrices further compressed through a tightening framework of regulation has born a hive of lost souls, and more importantly lost intellect, in a ‘Matrix’ style farm of human intellectual energy.

I remark on this because I am growing constantly aware of genius that is being cast aside from the once great institutions because they just don’t fit the tight matrix structuring that a modern institution demands. If they are looking for an employee, the demand is for highly specialised individuals to fit  highly specialised slots leaving those with broader but less intense abilities outcast.

In effect two types of skills distribution-

The specialist with clear cut edges of ability and interaction

The broadmind with a central skill but a probability curve of connective tails (much like the probability cloud of an electron).

Employing pegs for holes is fine as long as you are sure that the pegboard you, as management, have created is perfect. But it is a rigid structure unable to change without top down master decisions.

Yet that isn’t how we have found that the most efficient form of information evolution or processing occurs. The development of artificial intelligence has shown that algorithmic behaviour, or interactions providing feedback, at the base  level mean that efficient evolution can occur naturally, in effect self healing or evolvoing, before the top level control (management) has to interact. But for that to work you need an overlap of information and processing ability provided by the tails of skill sets that a peg specialist lacks.

Which makes sense, for who is more equipped to effect necessary change than those at the level of understanding involved. Pull that back to looking at management versus employee and though management may think they have an overview of the ship, if the engineers in the engine room aren’t capable of communicating the engine is likely to seize unless the captain of the ship also wants to get his hands dirty understanding the finest mechanics of its operation.

The need for a broader set of skills within individuals is hardly ever measured by a human resources team who are briefed for a best fit, rarely taking into consideration the overlaps. Big banks have headed this way fast and it leaves them unable to adapt or evolve because they have restrained all the variables that provide constructive evolution. Without it they will die.

The regulatory pressures and influx of HR driven pre-concepts at financial institutions has meant that they are losing some of their greatest minds. Those that didn’t quite fit or could see further than the cell in which they lived and asked questions that challenged a management that didn’t quite understand the system they were running were dragged out like deformed pupae and discarded by the clonal work force. Or using the ship analogy, those that cried ‘iceberg' were swiftly removed from the crew.

This is happening in fund management too. Individual specialisation in investment techniques has left  funds understaffed with those who can see the whole picture. The performance of macro funds has now started to outstrip that of the main indices. No great surprise to your author who suggested  in January (here) that 2015 would see  macro and sector selection, once thought dead and buried, rise again this year at the expense of index trackers. But the fund industry has also not only not been training new macro thinkers, preferring quants, but has lost some real talent too.

So what has happened to the bank and fund creative talent? Interestingly the more I explore the territories of the 'once-financial', the more I stumble upon enclaves of genius, hunkered down in bunkers of self doubt, wondering if the apocalypse of financial change will ever see them prosper again. Sad but true, there is genius out there, but broken from the supportive framework that they grew upon, they are full of doubt and without structure around which to regrow. The coral polyps looking for a rock on which to grow after the reef shattering financial hurricane.

Which has me feeling that there is a synergy to be had. Pull them all together under a sheltering umbrella of a new structure. A collective that is a hive mind but built on individuality, but with some underlying key rules. 1. No w@nkers. 2. No pressure unless you want it. 3. To fit in with your own life style.  The ultimate work life to keep the brain alive and contributing, yet provide a lifestyle that doesn’t involve 7am to 7pm workdays. Well, not if you don’t want it. The Kelly’s Heroes* of finance.

This is just the time too. Banks are having to separate research from trading and God forbid a sales person expresses an opinion for chance of being sued for a catalogue of misdemeanours. Advisory may be considered a free service by the client side but if they don't pay for it and the sell side can't be rewarded for it through trade volume as per latest regulations then we are due a Mexican standoff.

 At which point Kelly's Heroes enter stage left.

*If you are too young to have seen that film, dig it out and watch it. 


Anonymous said...

I really like this idea and have tried to build a micro-version of it (long-only equity buyside). I have two additional components to my unit:
- flat structure seeking absolute honesty in all discussions
- equal split of compensation (takes a bit of getting used to, but works)

'For the strength of the pack is the wolf, and the strength of the wolf is the pack.'

Polemic said...

Spot on Anon. I have built something similar in the creative space and can't see why it can't be applied to finance, but for the history and preconceptions of financial institutions - it will. In fact I am sounding out some like minds to do just this in finance.