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Profile: Morningstar’s Dan Kemp on why fund managers are like poker players

Morningstar’s Dan Kemp explains why great managers are like poker players and how investment banks undervalue theologians.

Fund analyst Dan Kemp is right where he wants to be. He is more than just an analyst, he is also the co-head of investment consulting and portfolio management for Morningstar Investment Management.

“I’m that saddo who wanted to be in investment management since I was 10 years old,” he says.

At that age he was obviously clueless about the depth, breadth and details of the City. But walking down the street he was fascinated that people could own parts of the shops he passed. Later he became interested in how those shares were valued and sold, entertaining the loose idea of growing up to be a stockbroker.

Throughout his school years he aimed for the City but the path took a significant twist.

“It all went slightly awry when I thought, in a mad moment when I was 17, that I would go and study theology at university rather than economics,” he says. 

He had become disillusioned with economics during his final year at college.

Most of the theoretical models he began to learn did not work in reality and he felt it was pointless and boring learning something that seemed so irrelevant.

“[Theology] wasn’t an entirely random subject for me. I think I half expected to end up in the church at some point. Theology is not as useful as maths to my career but I believe it teaches you how to think.”

He studied systemic theology, or doctrine, which is all about trying to ensure beliefs do not contradict, he explains.

“That is helpful because financial planning and investment is about coherence. You could buy 10 great funds for a client but if they don’t fit together they won’t do the job you want.”

However, his degree in theology put some short-term hurdles in his way.

“I thought it would be much more interesting to study theology – and it was, I had a ball – but then, when I came out in the mid-nineties, the investment banks weren’t crying out for theologians,” he says.

So he taught himself pensions in the summer holidays and picked up a job as a financial planner at Holden Meehan, where he gradually began to specialise in ethical investment.

Before he started running money and researching others who did, he spent years dealing with clients, he says. While that was not what he wanted to do, it helped him understand what investors are looking for.

“That perspective of the end investor is really important because the job we do today is not just running numbers or doing percentages. The role we have is taking care of people’s hard-earned savings.”

Advice was a good “in” that allowed him to hop across the City toward his goal of running money, he says.

“I’m part of the last generation of accidental fund analysts,” he explains.

“The generation that is a few years younger than me – and we employ a lot of them at Morningstar – were well-trained as fund analysts and had all the experience from the get-go. I think they are much better analysts than me and my generation because they’ve lived and breathed it from the start. Analysis is getting better and better which is really exciting.”

He says the data tools that are ubiquitous today were “inconceivable” when he began. However, he adds that analysing a fund means more than simply running the data.

“A fund manager may believe they have a great process but the art of the fund analyst is to pick it apart and figure out what may go wrong. There will never be a perfect process – just like there will never be a perfect doctrine of faith – but if you can be comfortable with something at its weakest point, then it’s good.”

It is also important to know the people making decisions and how well they can judge the markets, he adds.

“For the best managers, it’s a bit like a poker game: when you’ve got a good hand, you make the most of it.”

Old Mutual Global Investors’ Richard Buxton and hedge fund old hand Crispin Odey are exemplars, Kemp explains.

“It’s not just being academically right but also about making the most returns from it.”

In September 2013 Kemp helped set up fund research business FundCalibre, a joint venture between Albemarle Partners, which he co-founded, and Chelsea Financial Services. However, he moved to Morningstar just two months before FundCalibre’s launch.

“At each stage [of changing jobs] it’s been a move toward looking after portfolios, looking after funds and building innovative investment strategies,” he says.

“I’ve never moved from one company to another to do the same job.”

He is “privileged” to spend time questioning fund managers about their process and performance but now he has management responsibilities as well.

“I get to sit down with some of the world’s greatest investors and quiz them on what they do and how they think. That’s an incredible part of the business.”

His leadership role means he gets to “grill” fewer managers than he would like; however, he is involved in the investment committee meetings for the Morningstar managed portfolios.

“We’re a friendly team but if you put up a duff fund idea it’s a bear pit,” he says. “It’s about the end investor; it’s real money.”

Investment is forever about people, which is the enduring lesson of the industry, he says.

“We end up spending a lot of time staring at screens and looking at news, but the nut of it is all about people.”

He thinks the predicted death of face-to-face advice by “some doomsayers” is completely wrong for that reason.

“Money is so important that people want a relationship behind it. So I can say that’s a growing part of the industry rather than a shrinking part.”

Five questions 

What is the best bit of advice you’ve received in your career?

Do not underestimate the positive impact of change.   

What is keeping you awake at night?

Occasionally my children, but nothing else!

What has had the most significant impact on financial advice in the past year?

Without doubt the change in pension legislation. But I think the long-term positive impact on younger savers is not currently appreciated and will far outweigh the short-term impact on current retirees.

If I was put in charge of the FCA for a day I would …

Launch a huge advertising campaign promoting the value of independent financial advice in line with the FCA’s responsibility for financial education

Any advice for new advisers?

Recognise the impact of great financial planning on the long-term financial wellbeing of a client.

 

CV

June 2014 – present: Co-head of investment consulting and portfolio management, Morningstar

2012-2014: Partner, Albemarle Street Partners

2008-2012: Multi-asset fund manager, Saltus Partners

2004-2008: Head of fund research, Williams de Broe

2001-2004: Associate director, Douglas Deakin Young (latterly Duncan Laurie)

1997-2001: Financial planner, Holden Meehan

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. E L Wisty (an only twin) 23rd January 2015 at 4:26 pm

    “Theology ……. teaches you how to think.” The very statement disproves his opinion. I trust that when making investment recommendations, Mr Kemp relies on logic and fact, rather than a woolly belief in the supernatural.

  2. Armchair Contrarian 23rd January 2015 at 4:35 pm

    Is this guy for real? Very hard to take him remotely seriously. In part, as he doesn’t seem to have any track record at all; at least not one that I can piece together. But more particularly, the logical faculties of someone who decides to study theology because “He had become disillusioned with economics during his final year at college. Most of the theoretical models he began to learn did not work in reality and he felt it was pointless and boring learning something that seemed so irrelevant.”

    To be fair, the author may be a humourist, in which case, chapeau sir! Comedy gold.

  3. E L Wisty (an only twin) 23rd January 2015 at 4:50 pm

    @ Armchair Contrarian

    Good points. Although, when you have God on your side, surely the tedious obligation to study Economics is irrelevant.

    He should have listened to his calling.

  4. Armchair Contrarian 23rd January 2015 at 5:47 pm

    “He studied systemic theology, or doctrine, which is all about trying to ensure beliefs do not contradict, he explains.”

    Thankfully, there’s clearly no such contradiction between the application of a rational, scientific approach to investment management and the belief in an imaginary ‘magic’ friend who lives in the sky…

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