Exploring Fund Management Expertise

Table of Contents

1. Frontmatter

2. Expertise in Fund Management

   Fredrik Nilsson

   Abstract

   The chapter starts with a rationale for why expertise in fund management is important and why we need to increase and improve our knowledge about it. It presents a concise overview of the current and limited scientific knowledge on expertise in fund management. With that as a starting point, the contributions to the literature are outlined. The chapter ends with a presentation of how the book is structured and short chapter descriptions.

3. Performance and Fund Managers’ Expertise

   Martin Abrahamson, Michael Grant

   Abstract

   This chapter explores what constitutes performance of an expert fund manager in actively managed equity funds. Drawing on literature from finance and expertise, and exploratory interviews with actors in different roles in the fund industry, we problematise performance and explore it beyond the simple stock portfolio return. The findings highlight three areas, starting with the fundamental difficulty of assessing and measuring long-term performance of a fund manager in relation to a fund’s excess returns. Hence, approximate ways of assessing and measuring the performance of fund managers were used such as comparison with an index, or a ‘good enough’ rating from a rating agency, combined with a proven investment strategy and process. Second, fund managers’ tasks were not limited to generating excess returns; ability to market the fund and being a good representative and colleague for the fund were also important. This indicates a potential agency issue for the investors with the owners of the fund. Third, the findings suggest a difference in fund managers and organisational types. For example, funds that were owned by larger organisations such as banks or insurance companies could not provide equal or better remuneration or visibility for the individual fund manager compared with privately-owned fund companies, suggesting that privately owned funds have an advantage in recruiting and keeping expert fund managers.

4. Searching for Expert Fund Managers

   Martin Abrahamson, Michael Grant

   Abstract

   Consistently outperforming the market is difficult if not impossible for an individual investor but also for a fund manager. Finance research indicates there are various profound skills in fund management. These include the ability to select stocks, effectively time the market, acquire and utilise (private) information, and maintain a disciplined investment strategy that avoids cognitive biases. These findings are inferred from analysis of data at the level of funds. Consequently, they do not say much about the skills and characteristics of an expert fund manager. For example, what are the abilities and traits of an expert fund manager who is skilled in timing and selecting stocks. Research on expertise shows that developing necessary abilities and skills in a domain requires an extended period of deliberate practice. This involves high-quality experience with feedback, reflection, and progressively increasing challenges. Drawing on literature in expertise and finance, this chapter explores fund manager expertise by interviewing recruiters of fund managers and fund CEOs to understand how they characterise expert fund managers.

5. Judgments and Decisions by Expert Fund Managers

   Martin Abrahamson, Michael Grant

   Abstract

   This chapter explores how expert fund managers exercise judgment and make decisions, that is, the decision-making process. The study draws on explorative interviews with fund managers and other actors in the fund industry together with insights from previous studies on the decision-making processes of financial experts. The findings identify three areas. First, they indicate that intuition and heuristics are vital in expert fund managers’ judgments and decisions, and hence that fund managers’ decision-making consists of qualitative and quantitative assessments using intuition and analysis. This contrasts with a view of decision-making using sophisticated models for optimal asset allocation and detailed valuations of companies, and where the use of intuition and heuristics leads to erroneous decisions. Second, the study indicates a salient role of investment strategy for communicating with investors and highlights the high uncertainty of the environment in which fund managers’ decision-making is taking place. Third, the study consequently suggests that the environment is prone to emotions and therefore that strategies for managing these are essential for effective decision-making. This also pertains to the ability to be decisive in spite of a sense of high uncertainty, to avoid decision paralysis for fear of making the wrong decision.

6. Individual Foresight and Fund Management Expertise

   Melissa Innes, Sajid Anwar

   Abstract

   Expertise is commonly understood to comprise two key elements, domain expertise and adaptability. In the context of fund management, corporate knowledge and industry experience are critical for achieving positive investor outcomes. However, expertise becomes especially valuable when applied to non-routine, changing or unexpected scenarios. In such cases, fund managers could benefit from Individual Foresight (IF), the ability to imagine future scenarios by drawing on past experiences, planning future actions, and assessing these actions to determine future success. Importantly, IF is not developed in isolation. While it draws on a fund manager’s personal knowledge, experience and intuition, it also requires engagement with collaborative learning, reflection, and both formal and informal social networks. Cognitive strategies such as future-thinking further enhance this capability. By examining the unique skills and processes involved in IF, traditional competencies such as stock selection, prior analyst experience, group decision-making and market timing, can be better understood and integrated into future fund management development initiatives. This chapter explores how fostering IF can enhance adaptability and decision-making in dynamic investment environments.

7. Artificial Intelligence in Discretionary Fund Management

   Haojun Hu

   Abstract

   This chapter examines the evolving implementation of artificial intelligence (AI) in discretionary fund management. Drawing on interviews with fund industry experts, a recent survey, and existing literature, the study concludes that the development of AI augments rather than replaces professional judgment. AI’s role remains primarily as a specialised tool in expanding data access, enhancing data processing, and supporting idea generation. The chapter highlights that experience-based expertise is difficult for machines to mimic and that professional judgment is needed to distinguish useful signals. They provide discretionary managers with a distinct competitive edge, especially in choppy markets. This need for a ‘human in the loop’ emphasises the complementary relationship between advanced technical skills and business domain knowledge. Generally, discretionary fund management is depicted as a data-driven, technology-assisted, and human-centric discipline.

8. Integrating ESG Information in Active Fund Management

   Katarzyna Cieslak, Inna Neskorodieva, Fredrik Nilsson

   Abstract

   As sustainability has emerged as a major investment trend in recent years, this chapter explores how fund managers integrate ESG information into active fund management. Drawing from interviews with experts in the fund industry, we find that fund managers employ a range of ESG integration strategies—from disregarding ESG factors or applying negative screening to implementing proprietary screening models. Somewhat surprisingly, the findings indicate that ESG-focused investing remains firmly anchored in the financial value paradigm, with the primary objective of enhancing returns. Key skills in ESG-focused investing include the ability to select and validate financially material ESG information, as well as maintaining an agile investment approach, that is, balancing over- and underreaction to ESG information. Given the complexity and multidimensional nature of ESG information, fund managers rely on a combination of intuition and analysis in order to interpret and act upon it effectively.

9. Analysing Fund Managers’ Accountability

   Frank Hartmann, Janina Hornbach, Anna-Carin Nordvall

   Abstract

   This chapter examines fund managers’ accountability as an intermediate organisational and psychological mechanism between formal performance management systems and decision-making behaviour. We challenge the simplistic ‘what you measure is what you get’ assumption underlying many applications of accountability, arguing that accountability is not merely a contractual or metric-based mechanism but involves a complex social and psychological process. Drawing on ideas from agency, stakeholder, and legitimacy theory, we analyse how formal controls, informal norms, and self-imposed standards interact in the volatile environment that makes up fund management. We explore the tensions between short-term financial targets and long-term sustainability goals, particularly under growing Environment, Social and Governance (ESG) and Sustainable Development Goals (SDG) pressures. We argue that accountability can enhance deliberation and transparency, while excessive process imposition may crowd out intuitive expertise, foster short-termism, and induce gaming behaviour. We conclude that effective accountability systems must integrate quantitative performance measures with qualitative, culturally embedded practices that support ethical reflection and balanced trade-offs between investor returns and societal value.

10. Does Expertise Matter? Concluding Reflections

    Fredrik Nilsson, Martin Abrahamson, Katarzyna Cieslak, Michael Grant, Haojun Hu, Melissa Innes, Inna Neskorodieva, Anna-Carin Nordvall

    Abstract

    The final chapter of the book provides the reader with a concise summary and integrated analysis of chapters ‘Performance and Fund Managers’ Expertise,’ ‘Searching for Expert Fund Managers,’ ‘Judgments and Decisions by Expert Fund Managers,’ ‘Individual Foresight and Fund Management Expertise,’ ‘Artificial Intelligence in Discretionary Fund Management,’ ‘Integrating ESG Information in Active Fund Management,’ and ‘Analysing Fund Managers’ Accountability.’ The focus lies on the insights gained from the individual chapters, as well as what can be learnt in general, contributing to a deeper and more comprehensive understanding of fund management expertise. The chapter illustrates what fund management expertise is, how it is used and why it matters. It concludes by offering suggestions for future research as well as some practical implications.

11. Backmatter