Why looking at a person’s track record will never be enough.
There is a certain logic to looking at someone’s track record and using that to predict success but it is a flawed logic and can lead to bad hiring. The following paragraph is a piece from an article on the Fin Alternatives website :
"The list of Goldman alumni who have faltered after going solo includes former prop. trading chief Pierre-Henri Flamand, prop. traders Daniele Benatoff and Ariel Roskis, former fuel trader Gilbert Saiz, former co-head of private financing for Europe Robert Sorrell and an entire team of prop. traders who went to Kohlberg Kravis Roberts to launch KKR Equities Strategies in 2011 only to see it closed in June 2014"
Now if you were to meet, even interview these former Goldman stars I am in no doubt you would find a highly intelligent and ambitious group who would also have good interpersonal skills.
So why did these and others like them with great track records and the backing of sophisticated investors fail to deliver the expected results?
Some might say that market conditions changed and they were unlucky. This does not add up since Flamand spent 15 years at Goldman and had already seen many market changes. In addition the average event-driven hedge fund returned 5.3% while Flamands’ fund was performing significantly below average for the same year.
When anyone generates great results the context in which they generated those results must be taken into account. Goldman Sachs is over 140 years old, has 32,000 employees and over $900 billion in assets. It has built up its infrastructure and its culture and is seen as a powerhouse on Wall Street. These and other related factors contributed to the spectacular results that these traders generated while working there. It was the combination of their own unique talents and Goldman’s’ that made them so successful. I would contend that if they were to move to a comparable firm that their chances of them repeating their success would be higher than the move to a completely different environment, which was that of the hedge fund startup.
A start up hedge fund is nothing like a 140-year-old firm such as Goldman’s. There is no culture, no infrastructure, no outside firms supplying services that are identical to those at their former company. To complicate matters even more the new job is not even the same as their old one. They had to take on new responsibilities and had to accomplish other things such as dealing with legal and compliance issues, investor relations, overseeing the accounting function to name a few. They were also required to hire people and while most of them hired their former colleagues they also had to hire people they had not worked with before. Goldman prides itself on hiring and retaining the best performers but their hiring process is a collaborative effort and even if one of them makes a mistake in assessing a candidate’s ability, you can be sure that someone else on the hiring team will catch that mistake. If you take away the rest of the hiring team it is possible that hiring mistakes will be made.
Looking at a candidate’s track record and quantifying their results by taking into account the context in which they generated those results should be done in every hiring situation. Next you need to look at what measurable, tangible results they will have to accomplish at the new firm and decide if they have done something comparable and if they know how to do it in the new context. One additional factor is their level of motivation to do the work, especially if a large percentage is different from what they used to do.
What would be your best explanation why these superstars underperformed ?