In a secret ballot of partners last week, Jill Ader was elected over Rajeev Vasudeva, according to several of those who took part.
Ms Ader, a London-based senior partner, will be the first woman to hold the role when she takes over on November 1. She will also be the first chair not to have stepped up from the role of chief executive, breaking a tradition in place since the firm’s eponymous Swiss founder stepped down as chair in 2000.
The vote at a partner meeting in San Francisco last week opens an uneasy interregnum until Ms Ader replaces Damien O’Brien, who has chaired Egon Zehnder since 2010. Mr O’Brien is approaching his 62nd birthday, the statutory retirement age for chairs of the firm.
He said Ms Ader was “a hugely respected colleague”, adding that “there’s a strong sense in the firm that she will be a fabulous leader”. He declined to comment on the identities of other candidates for the position or the detail of the election process, which he said was “super-confidential”, reflecting the fact that Egon Zehnder is a private partnership.
“Leaders emerge, someone emerges stronger than others and she emerged the strongest,” he said.
Egon Zehnder is one of the world’s top executive search businesses. The firm was recently reported to be advising Unilever’s board on the search for a replacement for Paul Polman as chief executive, and last year helped select candidates to head Infosys of India.
“I am delighted and honoured to have been elected by the partners to lead Egon Zehnder at this exciting time,” Ms Ader said in an official statement this week.
A number of partners who were at the meeting confirmed Ms Ader was elected over Mr Vasudeva. The result will fuel speculation Mr Vasudeva may now step down as chief executive, a role he took in 2014. Mr Vasudeva could not be reached for comment. Egon Zehnder, which has more than 450 consultants and 257 partners worldwide, declined to comment.
The firm’s partners have been instructed not to discuss the partnership meeting. However, one said that the chair-elect and chief executive represented different approaches, with Ms Ader standing for the “humanist” side of the firm and Mr Vasudeva the “performance” side.
Ms Ader founded Egon Zehnder’s chief executive succession practice. As the boundaries between consultancies have blurred, she has also been instrumental in helping to move the firm into new activities, such as a partnership with Mobius, a coaching, training and leadership development group.
While Egon Zehnder’s rules allow for the election of the chair, previous holders of the role have taken it on uncontested and then appointed a separate chief executive from inside the firm. The partner vote reflects best practice in listed company governance, which suggests chief executives should not move up to the role of chair, though this still sometimes happens as an interim measure, particularly at US companies.
French retailer Groupe Casino is teaming with consumer group L’Oréal to launch a beauty and wellbeing store concept in Paris, illustrating how retailers are seeking new ways of attracting consumers to shops in the face of growing competition from online.
On Saturday, Casino will open “le drugstore parisien” in two locations in the French capital through its Franprix convenience stores brand. As well as selling products ranging from beauty and wellbeing to snacks and accessories, the store will offer additional services including free WiFi and restrooms, mobile charging stations, hairdressers and pick-up stations for postal goods.
If the two stores — one on Rue de la Chaussée-d’Antin in the 9ème arrondissement and the other on Rue du Bac, near the fashionable Saint-Germain-des-Prés district — are successful, Casino plans to roll out the concept more widely in Paris and abroad.
Jean-Charles Naouri, Casino’s chief executive and controlling shareholder, is regarded as a pioneer in French retail. He downsized hypermarkets years before rivals, anticipating that the format would fall out of favour with consumers, and expanded convenience stores under the Franprix banner.
“With this ‘Parisian drugstore’ we meet the new expectations of consumers in metropolitan areas,” Mr Naouri said.
In Paris, there are pharmacies on one side and food retail on the other, but there is nothing really in the middle
Cécile Guillou
Unlike the large pharmacy and convenience chains such as CVS Health and Duane Reade in the US or Boots in the UK, French pharmacies stock only medicines and personal products. They tend to have restricted opening hours and are closed on Sundays.
“In Paris, there are pharmacies on one side and food retail on the other, but there is nothing really in the middle,” said Cécile Guillou, general manager of le drugstore parisien.
The only store in Paris that is at all comparable to Franprix’s new concept is the Publicis Drugstore on the Champs-Elysées, which brings together a round-the-clock pharmacy with a restaurant, bookstore, delicatessen and bookstore, and is a popular meeting place for Parisians.
Franprix’s first two drug stores will be open seven days a week, Monday to Saturday from 10.00am to midnight and Sunday from 11.00am to 8pm. For one day each month they will be open for 24 hours to offer Parisians what Casino calls “exclusive entertainment and wellness services”. This shows how brands are trying to create a more immersive and experiential dynamic that extends beyond just buying products.
Several L’Oréal brands including Maybelline, Garnier and NYX Professional Makeup will be stocked in the stores. Jean-Paul Agon, L’Oréal chief executive, said: “We are very happy to be a player in the change alongside Casino to invent a new beauty experience for consumers in France.”
The launches come as Casino’s share price has dropped a third this year. This reflects investor concerns about the structural complexity with which Mr Naouri has built the group over the past three decades and worries about the financing arrangements in its complex chain of investment vehicles, some of which face imminent debt refinancing deadlines.
Casino last week announced a disposal plan of €1.5bn in non-core assets, including real estate, to help reduce debt and shore up investor support.
Colin McLean likes to analyse. For more than three decades, he has examined the pros and cons of different stocks. The fund manager now analyses himself.
The chief executive of SVM Asset Management, the British investment boutique, keeps track of investment decisions so he can examine the psychology behind his choices.
It has helped him learn valuable lessons. “I tend not to make good decisions outside the office,” he admits, adding that his better investment choices are made when he is surrounded by his support team at a Bloomberg terminal.
His self-analysis convinced him he should introduce some rules when performance was bad. “If a position goes against me over a period of time, I find it is a good idea to close a third of it,” he says.
Mr McLean’s self-criticism is rare in the fund industry, where confidence is king. He is, though, one of a growing number of executives looking at a link between psychology and investment decisions.
In April, Stamford Associates, the consultancy used by wealth manager St James’s Place and other big investors, hired Adrian Furnham — who had been professor of psychology at University College London for more than 25 years — as part of an effort to use psychology when choosing and monitoring asset managers.
Some wealth managers are also looking into the psychology of a portfolio manager when choosing funds.
All this comes as academia examines the link between investors’ performance and their background and behaviour.
Oleg Chuprinin, a lecturer at the school of banking and finance at the University of New South Wales, says: “The best fund manager is someone who chooses investments well and picks the right stocks at the right time. How do you become a good manager and what other factors that make you a good manager? Psychology is one of those factors.”
Stephen Peters, a fund analyst at Barclays Wealth and Investment Management, says his team considers behavioural and psychological issues such as pay — “which definitely drives motivation, both good and bad” — as part of its analysis of fund managers. They also consider biases, mistakes and how fund managers learn from them, as well as how decisions are made and tested within the team.
At Stamford, Prof Furnham attends meetings with fund managers, watching how they react and how they answer questions. He also speaks to people who know the managers, such as their analysts, to try to understand their make-up.
“There are a number of personal characteristics that seem to predict behaviour and performance over time,” he says. These include a fund manager’s focus on detail, their intellectual curiosity, ability to carry out granular analysis and their relationship with peers and subordinates.
“The best managers are the best at getting the best out of their analysts,” he says.
Prof Furnham looks closely at fund managers’ ability to recognise and regulate their emotions: “If you become emotionally volatile, it has a huge effect on decision making.”
He says he is interested in how fund managers respond to failure and whether it causes them significant upset or influences decision making. “We all make bad decisions. The question is if you ask them why they made a bad decision, are they going to spend a lot of time justifying it or are they going to explain what they learnt from it?”
He says “defensiveness around failure and the inability to learn” is a particularly concerning trait in a fund manager. “You don’t want people to be highly emotional. It clouds their decision making and the decision making of everyone around them.”
Greg Davies, head of behavioural finance at investor risk-profiling company Oxford Risk, looks at how fund managers deal with emotions. “You don’t want to eliminate emotions. If people have to make decisions, you need some emotional attachment to the future. But you want people making decisions that are not driven by knee-jerk emotional reactions,” he says.
Mr Davies, who set up the banking world’s first behavioural finance team for Barclays in 2006, worries about fund managers who say they leave their emotions at the door, believing this is unlikely. Fund managers who admit that their emotions influence them are “a step up”.
What he wants to see are fund managers who are aware of their emotions when making decisions. “They should be asking: ‘Am I in an overly excitable state. Do I need to calm down before I make decision?’”
“The fund manager who is mindful of their emotional state is likely to be a better decision maker,” he says.
To find whether fund managers are aware of their emotions, Mr Davies looks for signs such as a “pause point”, where a fund manager’s process means they stop to think before making a decision. This may involve having to write down why a trade makes sense, or having to explain to another person the rationale behind a planned trade.
He says evidence suggests that the finance professionals who are most successful and last longer are those who are “able to be introspective and reflect on their own decisions and emotions”.
A 2011 study by four academics for the UK’s Open University, published in the Journal of Organizational Behavior, found that how traders controlled their emotions was central to decision making. It showed that different strategies for regulating emotions had material consequences for trader behaviour and performance.
Other studies, including 2015 research by consultancy Dalbar, argue that retail investors show a series of biases when investing, often selling stocks at the wrong time.
Mr Chuprinin says professional investors show similar biases when investing, including the “disposition effect”.
“There is a tendency in even professional managers to sell the winning stocks very quickly and hold on to the losing stocks. The logic being maybe something will change,” he says, arguing that this reasoning makes little sense.
Mr McLean, meanwhile, says fund managers must be careful not to be swayed by the compelling stories told by company executives. “There is a tendency to believe that shorter-term fixes really are going to fix everything. We tend to clutch at straws when we see companies faced with major strategy challenges,” he says.
He says one of the most important traits for a fund manager is resilience. “There will be periods where markets and stocks underperform. Managers need to know how to recover from that and apply overall risk-analysis judgments, even when their numbers suggest something different.”
This is one of the reasons he recommends that employees at SVM keep a record of their decisions. “If people maintain analysis of their own work, they can see some of their failings,” he says.
Matthew Vincent, FT
Facebook can be accused of many things. Allowing the personal data of 50m users to be harvested. Facilitating the dissemination of fake news. Enabling Russia to influence the outcome of the US presidential election. Letting Josh “like” Zoe’s posts while, uh, like totally ignoring her on Messenger . . . WTF is that about? (Apparently, this is called “orbiting” and is 2018’s answer to “ghosting” — ask a young person.) And now it seems another charge may be added to the list: making equity markets more volatile.
That is certainly what some wealth managers think, anyway. According to Philip Smeaton, chief investment officer at Sanlam UK: “Within two days of media reports suggesting that the Facebook profiles of 50m users were harvested for data, more than $50bn of value was wiped off the company’s stock value. Why is this relevant? Well, we think we’re entering a sustained period of increased volatility, and the media will likely have its part to play.”
But can the media, traditional or social, influence investor behaviour any more than it did in the past? Or is it the market value of media companies themselves that better explains recent spikes in volatility?
Wealth managers, despite their longer time horizons, have found it hard to ignore volatile share prices. In early February, the Chicago Board Options Exchange Volatility Index hit 38 — its highest level since August 2015 and double its long-term average. But Fahad Kamal, senior market strategist at Kleinwort Hambros, puts it in terms that clients can more readily grasp: “In all of 2017, the MSCI AC world index of global stocks moved by 1 per cent or more in any direction on just five days. But as at April 26, the same index has had 19 such days in 2018.”
Those were not days driven by unusually high broadcast or social media activity, though, says Kevin Gardiner, global market strategist at Rothschild Private Wealth. “Volatility is often exacerbated by media reports,” he says, but adds: “The current situation doesn’t feel any more sensationalist than usual. What is different perhaps is that the business models of social media companies are being questioned more directly.”
These models, and the valuations attributed to them, are far nearer the problem, says Kamal. He points out that Facebook, Amazon, Google and Microsoft now comprise more than 10 per cent of the S&P 500 by market cap — which makes equity markets vulnerable to any sense of “regime change” between them, but keeps investors exposed because “these companies are still where all the excitement is”.
Facebook had proved so profitable a holding — after a 50 per cent price rise in 2017 — that it seemed safe, suggests Julien Lafargue, European equities strategist at JPMorgan Private Bank. “When the perceived safety of a popular investment is suddenly being questioned, investors may panic and run for the exit, causing volatility to spike.”
Most managers agree, however, that it was broader economic news on Facebook feeds — or more reliable websites — that really moved share prices. “News has driven volatility in 2018 because this year’s headlines have been directly tied to the economy, so it was naturally reflected in the financial markets,” says Katherine Ellis Nixon, chief investment officer at Northern Trust. “Would a trade war hinder overall economic growth? Would growth above trend spur inflation, leading to much tighter monetary policy? How far behind the US are other major central banks in moving toward the exits?”
Edward Park, investment director at Brooks Macdonald, says the expected withdrawal of central bank liquidity had set a rockier backdrop for equity markets, and it only took one news event that increased this likelihood to send prices falling. “When the US wage growth number surprised to the upside at the start of February, volatility abruptly returned to markets,” he says.
Still, he thinks equity investors can filter news more skilfully than any algorithm. “Markets over time differentiate between news topics that represent ‘noise’ and those that potentially signal a change in the corporate or economic picture,” he says.
Wealth managers suggest they know when to stop listening, reading, swiping — and liking. “When markets are noisy, the best advice often is, ‘Don’t just do something, stand there’,” says Gardiner. “Most stock valuations have not been outlandish and investors taking a long-term view, and holding an appropriately diversified portfolio, should leave their underlying positions intact.”
Ellis Nixon is equally opposed to reaching for the keypad. “Inter- and intra-day volatility is a good reminder to investors to sit on their hands during periods like this,” she says.
Facebook, then, is perhaps best ignored. It would appear not to be such a factor in market movements as some would claim. Except, perhaps, indirectly — given the US election stories it helped spread ahead of Donald Trump’s victory in 2016. When asked about 2018’s volatility, Michael Purves, chief global strategist at Weeden & Co, told Bloomberg: “Obviously, Trump has helped create some.”
Chinese border town awaits North Korea trade thaw
Perched just inside China, across a picturesque bend in the Tumen River and the North Korean border, sit 1.5 square kilometres of sleek new warehouses, containers and loading docks belonging to Hunchun Posco Hyundai Logistics International. With $100m invested so far, the joint venture, uniting three South Korean industrial conglomerates, is a massive bet on warming relations between China and North Korea.
It sits mostly idle these days, said the facility’s South Korean general manager Oh Jong-soo, with just 10 of 26 planned warehouses operating, and those are at 37 per cent capacity.
He glumly recounts the optimism that prevailed in the Chinese border region following the diplomatic opening to North Korea by the US, South Korean and Chinese leaders over the past two months. But trade across the border, which was brought to a halt by UN sanctions last year, is at a standstill. He said sanctions last August deprived his company of handling 5,000 tonnes of seafood exports from North Korea.
“After the summits, we were looking forward to better relations between China and North Korea, but we have not seen any good effect so far,” he said.
China’s unprecedented blockade on North Korea is widely thought to be one of the factors that have pressured Supreme Leader Kim Jong Un to seek disarmament talks with the west. Some 90 per cent of North Korea’s trade is via China, which has, until this year, traditionally been the most dovish on Pyongyang. Part of the reason is that sanctions also hurt China, mainly in the cluster of border towns such as Hunchun, on the Tumen River.
When a series of weapons tests by Pyongyang last year were answered by harsher UN sanctions, the pain was felt here and encompassed trading cuts in oil products, coal, imports of guest labourers and seafood. But China also implemented measures that went beyond UN-mandated ones.
“Basically all commerce with North Korea stopped,” said Liang Jingbo, owner of a seafood shop in Hunchun, where he tends to tanks of live crabs. The seafood sanctions forced the industry to import from Russia instead at prices roughly double that of North Korea. “It’s not just the seafood business but the overall economy in Hunchun that has been affected,” he said.
This sparked an exodus of guest workers and a drop in property prices and restaurant income.
Even businesses that are not directly sanctioned, such as Chinese tourism in North Korea, remain officially discouraged, except for days trips.
Various summits among the leaders of China, the Koreas and the US led townspeople to believe that change was imminent, pushing up property prices. Zheng Jia Liang, a real estate agent in Hunchun, said house prices climbed 10 per cent in the past month, driven by interest from “a lot of people from out of town”.
But while optimism is real, moves to open the border are not. China said it would continue to implement UN resolutions, although it has also pushed for sanctions relief for North Korea, instead favouring a “dual track” approach to nuclear disarmament that rewards incremental steps with partial sanctions relief. The US opposes this move.
Meanwhile, Beijing appears to be undoing some unilateral moves aimed at pressuring the North in areas that were not originally subject to sanctions.
Shortly before Mr Kim met Donald Trump for their historic summit in Singapore, Air China resumed Beijing to Pyongyang flights after suspending them five months ago.
A travel agent at Kanghui International Travel Service in Dandong, a border city further south, confirmed an increase in tourists going to North Korea over the past month, but could not offer a reason. Another travel agent also confirmed the increase.
“[Chinese authorities] appear to be lightening up on things that are not governed by UN resolutions,” such as tourism, said one Beijing based diplomat, noting that long-term travel to North Korea by Chinese was officially discouraged.
In Hunchun, the main motivation for travelling across the border in previous years was to buy seafood at a supermarket on the North Korean side and returning to China — something that is now illegal.
On Tuesday, two dozen trucks were waiting to cross at the Quanhe border, but a driver said trade was still all but halted. Dormitories that once housed North Korean labourers in the Hunchun Economic Co-operation zone were empty.
However, a number of infrastructure projects signal that the local government is optimistic about the prospects for normalised relations and an open border.
A new bridge, for example, spans the Tumen river at the Quanhe checkpoint, in addition to an old bridge built by the Japanese in 1938. A massive new customs house is being built next to the crossing at Quanhe, topped by three cranes, which points to expected growth in trade.
A high-speed train connects Hunchun to the provincial capital, and residents said they one day expect this rail line to continue into North Korea when the time is right.
Meanwhile, the Posco Hyundai facility is another monument to future possibilities. Jointly invested by Posco, Hyundai and Lotte, three South Korean industrial groups, it was launched in 2012 and began operating in 2015. It was originally planned to open fully next year but has been delayed due to operational reasons, the company said.
