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The world’s largest sovereign wealth fund just made its largest return ever. But the probability of extreme market events has “arguably risen”, and it’s carrying out stress tests for a more uncertain future.
Texas pension fund considers psych tests on managers
(pictured: Christopher Schelling)
A big US pension fund is investigating the use of personality and aptitude tests for fund managers to become part of its due diligence process. The fund’s head of private equity investments, Christopher Schelling, has written a paper explaining the rationale.
Schelling, the director of private equity at the Texas Municipal Retirement System, had the paper published on Asset International’s daily ‘CIO’ newsletter late last month.
He says that the three ‘I’s – Intelligence, Integrity and Intensity – which he terms 3i”, are the most important character traits in a fund manager.
He says: “Numerous private-sector firms have long utilized such tests for direct hiring decisions, as have many government agencies for certain types of critical contractors. “Since hiring managers is really all about hiring people, the parallels are obvious. Psychometric tests are far from perfect, but have been shown to be reasonably accurate. And in addition to scoring cognitive ability and measuring select personality traits, they often test for internal consistency and can highlight individuals engaging in self-promotion and potential prevarication.
“At the very least, tests provide hard data and a means to objectively quantify inputs in an otherwise purely subjective and qualitative process.
“For me, that process is identifying managers who are high 3i. The biggest hurdle will be adoption by prospective managers, particularly the ones that are access-constrained.”
