The Great Mismatch: Addressing Barriers to Global Capital Flows

Executive Summary

Cross-border capital flows are at an inflection point. While in aggregate they
have not returned to pre-crisis high watermarks—primarily driven by a significant decline in bank lending—they are increasingly varied in their scope and direction. More countries around the world are seeking and providing capital across borders than ever before. And asset managers and asset owners—not just governments, corporations and banks—are becoming increasingly influential in determining the scale and stability of global capital flows.

Yet capital around the world is being deployed inefficiently—large pools are not getting the returns they should, even as many needs for investment, both public and private, go unmet. This “great mismatch” is driven by a confluence of governments focused on near-term electoral cycles and rent-seeking, emerging-market financial institutions lacking investment management expertise and depth, and investors prioritizing short-term gains over sustainable long-term investment priorities.

Correcting this mismatch represents one of the most significant opportunities for global growth over the next decade. Success will require both long-term institutional investors and policymakers re-thinking long-standing assumptions and re-shaping their role in global markets. This report provides the backdrop and lays the case for six key recommendations over both the nearer and longer term:

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Credit sources fairly in your financial blog posts

IntegrityYou want to do the right thing when you find an interesting idea, statistic, or quote that you use on your blog. That means crediting your source. How much information must you provide?

Citation rules for blogs aren’t as clear as for books, where sources such as The Chicago Manual of Style lay out rules. I’ve developed suggestions for you based on my experience, Ann Handley’s Everybody Writes: Your Guide to Creating Ridiculously Good Content, and other resources.


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Positive Psychology: Assessing Personal and Professional Performance

Applied psychology has historically focused on the treatment of emotional/behavioral disorders and the remediation of conflicts and life problems.  This focus has been enshrined in the reimbursement system, as insurance entities require Diagnostic and Statistical Manual codings of illnesses to justify reimbursement. 

In spite of this “medically necessary” emphasis, a parallel industry has sprung up around self-help, coaching, and work with normal populations.  Much of this work stresses the enhancement of positives rather than the elimination of negatives.  Until recently, very little research guided this positive branch of applied psychology.  With the pioneering work of Seligman, positive psychology—the study of optimal functioning and well-being—has become a legitimate research focus in academic psychology.  A health-based classification system has gained traction and a wealth of resources, including validated psychological tests, are now available.

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Warning! Don’t make these interview mistakes

So you landed a fantastic interview opportunity, and now you need to seal the deal to get the job offer. Whether you are interviewing at a bank, asset manager, hedge fund or any other type of financial institution, it’s hard to predict the type of interview you will have. 

As an executive and career coach, I work with many clients on preparing them for high-stakes interviews. Having interviewed several hundreds of finance professionals throughout my career either as a coach or, formerly, as a fixed income sales professional at investment banks, I have started to notice the following patterns. These three behaviors are surprisingly common and detrimental to your success:

Thinking that if it’s on your resume you don’t need to mention it

I can’t tell you how frequently I hear, “It’s on my resume, so I figured I don’t need to say it again.” Your resume on average will have about 400 words. I can guarantee that even if your interviewer was thorough when reviewing your resume, they paid attention to no more than 100 of those words. Don’t let your resume jewels fade into the background. Make sure you have a method for bringing them to the forefront during your interview. Preparing and practicing your stories with a mock interview is a great idea! 

Not engaging in casual banter with your interviewer

What is it about interviews that make people throw their awesome personality out the window? Think about it. If you were interviewing someone, would you prefer to hire a robot with no personality or a charismatic and engaging person with whom you share common interests? We spend more time with our colleagues than we do with our family and friends. Your interviewer is trying to figure out if you would fit the culture of the firm and if you would be fun to sit next to on a plane for six hours. Next time you are asked “What do you like to do for fun?” don’t over think the answer and let your personality shine through. Also, if at the mention of tennis, your interviewer starts to talk about his high school tennis years, indulge him. Don’t worry that your interviewer isn’t peppering you with technical questions, instead see this as a bonding opportunity. The more shared interests you and your interviewer have, the greater your chances of getting hired!

Not asking the interviewer about themselves

Most people are quite selfish in their interviews.

“I did this…”

“My background is this...”

“My weaknesses/strengths are these…” 

Yes, the interview is a meeting where the sole agenda is for you to talk about yourself. However, if you want to land this job, you will make your interviewer feel that he/she is the interesting one.  Most interviews end with the dreaded question of “Do you have any questions for me?” This question is the interviewer’s chance to shine after having to listen to you for 30-60 minutes. Don’t disappoint them with generic questions such as,

“What are the next steps?”

“What is the culture here?” or

“Tell me about the needs of role for which I am interviewing.”

Instead, I encourage you to ask a question directed at the interviewer and about the interviewer. Here are some examples: 

“What are some of your favorite projects you have worked on here?”

“What has been your path at the firm and prior?”

People love to talk about themselves. As Dale Carnegie teaches us, by encouraging others to talk about themselves, we are ultimately getting them to like us more. And isn’t that the point of your interview?

-Helen Dayen is the founder and CEO of Dayen Group. She is a career development & communication coach.

NYSSA is proud to announce that we are launching a new interview prep coaching package in collaboration with the Dayen Group - an executive coaching company focused on the financial services industry. Please click here to explore our coaching packages and schedule a mock interview appointment.


Decomposition of Total Volatility: How Important is Idiosyncratic Risk?


In recent years there has been a lot of debate about volatility, and the components of volatility. A lot has been said about the risk-on, risk-off market with a focus on macro and factor risks. There are many dimensions to volatility, and this paper uses the methodology of Campbell et al. (2001) to break down the total volatility in US equities into the three components of Market, Industry and Firm (idiosyncratic risk), and analyzes the trends in their share over time. We look at the time period January 2005 through December 2014, incorporating the years prior to, during and post financial crisis, and use S&P 500 as a proxy for the US equities, with the Global Industry Classification Standard (GICs) sector classification. The main conclusion is that there is a strong payoff to stock selection even in the post-financial crisis era where market participants often think of risk only in terms of risk-on and risk-off. The share of idiosyncratic risk indicating benefits of stock selection decreased a lot during the crisis. It is now at the highest level since the start of the financial crisis, though still much lower than in the pre-crisis years.   

Active stock selection can make the greatest contribution when idiosyncratic risk becomes a bigger component of total volatility. Campbell et al. (2001) laid out some important reasons for decomposing aggregate volatility into its sub-components of market, industry and firm. Aggregate volatility, important in any theory of risk and return, is the volatility experienced by holders of aggregate index funds. But aggregate market return is only one component of an individual stock’s return, with industry-level and idiosyncratic firm-level shocks being two other important components. Some reasons to be interested in volatility of the sub-components include holding portfolios that may not be diversified enough, or arbitrageurs trading stock mispricings facing risks related to idiosyncratic volatility. The optimum number of portfolio holdings needed to make it well-diversified is itself a function of the level of idiosyncratic risk.

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Operational Due Diligence: The Forgotten Part of Due Diligence

FPPpicThe evaluation and selection of investment managers is dominated by an Investment Due Diligence process focused on strategy, performance, and client objectives. Often overlooked and considerably undervalued is the Operational Due Diligence process
which looks into the quality of a firm’s operations. As a necessary component of a complete due diligence process, it can be considered as the part of the process that confirms the validity of the findings resulting from investment due diligence. Comparatively, the operational process is more focused on the qualitative aspects of an investment firm and looks at areas such as people, processes, products, policy, and providers.


The overall objective of looking at the people who are employed within a firm is to verify whether their experience, qualifications and compensation are appropriate with respect to the portfolios managed, strategies employed and clients’ needs. Most investment firms can be broken down into three units: that is, a Front Office, a Middle Office and a Back Office.

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Shocker! When you self-promote you actually help others

As a career coach, I work with clients who are top professionals in their fields. Despite their accomplishments and the desire to have more visibility in their careers, many struggle with self-promotion and self-advocacy. They come to me hoping to learn to articulate their value proposition and accomplishments to key stakeholders (i.e. managers, prospective employers, clients) without being perceived as boastful or bragging. 

The shocking thing is that most of my clients are confident individuals yet they get stuck when it comes to talking about themselves. Shying away from self-promotion prevents them from getting assigned to desirable projects, obtaining greater responsibility, and earning more money.

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Book Review: Misbehaving- The Making of Behavioral Economics

MisbehavingRichard H. Thaler has spent his career studying the radical notion that the central agents in the economy are humans―predictable, error-prone individuals. Misbehaving is his arresting, frequently hilarious account of the struggle to bring an academic discipline back down to earth―and change the way we think about economics, ourselves, and our world. 

Traditional economics assumes rational actors. Early in his research, Thaler realized these Spock-like automatons were nothing like real people. Whether buying a clock radio, selling basketball tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. More importantly, our misbehavior has serious consequences. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments.

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Living in the Outlier

The past few years can only be described as one of the most unusually serene periods in history for the U.S. equity market. While over time it began to feel normal, we have been living in the outlier. Let’s take a quick trip down memory lane. 

The DiMaggio Streak of Markets

We’ll begin with the historic run from November 2012 through October 2014, what I have called the “DiMaggio streak of markets.” At 475 consecutive trading days above the 200-day moving average, we have never seen such a steady advance and lack of a meaningful pullback in the history of the S&P 500.

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7 Ways to Manage Writing by Committee

The best way to manage writing by committee? Avoid it. As Ann Handley says in Everybody Writes: Your Go-To Guide to Creating Ridiculously Good Content,

Having a buddy by your side is helpful. Having an entire committee on your back? Not so much. 

However, writing in a regulated industry means that many of you must get your materials reviewed by compliance. Also, if you’re a financial marketer, your subject-matter expert will want to check your work. 

I have some tips, based on my experience as director of investment communications for an asset management firm.

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Avoid Turning your Investment Firm into a Technology Company

As information technology’s development accelerated, the investment industry took notice and began developing systems that would automate formerly manual tasks. Over time these systems have evolved into something more. While their benefits are continually vaunted by vendors and end users alike, the processes of ensuring that these systems are properly implemented and maintained belong, first and foremost, to the firm.

It is easy to become seduced by the technological attraction
that systems offer but if an investment firm does not clearly
and thoroughly understand the purpose of a system, the
technological dream will quickly turn into a nightmare. In
general, systems are there to facilitate tasks, such as data
management, analysis and reporting. Once that is known, a
system must be properly “placed” within a firm. That is, it is to be maintained by the operations team, supported by IT, managed by specialists (performance, risk, etc.), used as a feedback tool by the front office and fund sponsors, and as a means of communications to the clients.

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How to Select the Optimal Valuation Method to Build Better Price Targets (Part 3 of 3)

Flow chart (as featured image)This 3-part post is all about following best practices for selecting the optimal valuation method…namely the one that’s going to derive a price target more accurate than consensus.

As noted in Part 2 of this 3-part series, there are limitations to every valuation method, but some are better than others. For years I had been looking for an information source that quickly summarized the best method(s) to use under each circumstance, but couldn’t find one. So I created the flow chart below.

The idea is to start at the top of the flow chart and work your way down as far as possible, to get closer to the methods that measure free cash flow. Note the blue shapes are single-period multiples-based methods whereas the tan shape, DCF, is a multi-period cash flow method.

Callout: The further you can go through the flowchart, the closer you are to valuing the company’s free cash flows.

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Why Fund Sponsors Are Failing

AnswersI was in the process of working on an article
 about why fund sponsors were failing the 
funds and their pension beneficiaries. The
 article was going to focus on the role
 sponsors take in the management of the
 fund, identify their shortcomings and
 propose solutions. Coincidentally, I
 was watching The Daily Show with Jon 
Stewart one night while his guest, Wall Street Journal reporter Ellen Schultz, was promoting her new book. “Retirement Heist” talks about the deliberate mismanagement of pension funds for the benefit of the sponsor and their executives. The next day I stopped by the bookstore and picked up her book. Once I began reading, the focus of my own article shifted from solely looking at the role of fund sponsors in the management of pension funds to also consider the sponsors’ place in society and the long-term consequences of their short-term focus.

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Don’t Overlook Benchmarks

ChartInvestors are presented with a barrage of marketing material from funds and
 managers trying to raise capital, and
 what all these reports have in common is 
that they all focus on performance. That
 is not surprising considering the 
relatively large number of funds available with the few strategies being 
used, managers feel they can only
differentiate themselves through performance. Attend enough sales presentations and you will have heard how “my long-short equity strategy has consistently outperformed the market and that is why you need to invest with us.” By the way, the “Past performance is no indication of future results” is usually said with much less gusto.

This is not to disparage managers and funds alike but rather to help investors identify the good managers whose past performance is more than likely a good indication of their future performance. Although a thorough performance evaluation requires the skill set of a performance specialist, any investor can begin such an evaluation by questioning one simple and important component of the performance marketing material, which is the benchmark.

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Are financial predictions too risky for investment commentary writers?

CrystalballIs it a bad idea to make predictions in your investment commentary because clients will slam you when you’re wrong? Whenever you make predictions, you run the risk of being wrong. But being wrong isn’t a problem, in my mind, if your prediction reflects good thinking.

Lesson from my winning prediction

Accurate predictions alone don’t make you seem smart. I remember the time I participated in a betting pool with members of an investment policy committee. I had to predict where a certain number—probably the 10-year Treasury rate—would be one quarter later. 

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