Running a Hedge Fund Not Unlike Managing People

By Jeremy Smerd

Mar. 27, 2009

For nearly 17 years, Ari Kiev was the in-house psychiatrist for multibillion-dollar hedge fund SAC Capital. While Kiev’s work, including seven books along with one currently in progress, has focused on hedge fund management, his insights could easily be embraced by executives looking for ways to improve the performance of employees. Kiev spoke with Workforce Management staff writer Jeremy Smerd about the lessons he has learned.

    Workforce Management: When you started at SAC you held group sessions to discuss ways people could talk about the psychological challenges they faced in their own work. How did you get around that?

    Ari Kiev: You are in a forum where honesty and truth-telling is made into an asset. Admitting vulnerability—some people do, some people resist it. Some people are more open than others. Somebody starts getting open, you acknowledge that and you encourage that. And you set up a rule where nobody is there to comment on what anybody else says. We’re just here to hear about the human experience that we’ve all experienced.

    WM: So what do you tell an employee who is clearly not living up to his potential? How do you get him to change?

    Kiev: First, the trader has to identify the emotion and how it affects him. Keep notes on yourself. Observe your own level of anxiety.

    Each person has his own idiosyncratic ways of making decisions in the face of stress.

    I talked to a guy the other day who lost a billion dollars. He had various explanations for it and so on, but his problem was he hired people who were less than the best because he couldn’t get the best people for his team because he wasn’t in London. So he was using a second-tier level of people and he had zero appetite for management. He’s wired to take risks, to analyze problems, to trade. He has little empathy, little patience for communicating and hand-holding. The conclusion is that he probably needs a partner who can manage everybody else. That’s not what you want to do even though you are trying to manage a fund. You are not that kind of leader. Now, that’s not an easy conversation to have because he doesn’t want to give up control.

    WM: What advice can you give to managers who are trying to get the best out of their employees?

    Kiev: There’s no single formula. You are really trying to listen to each individual in terms of their uniqueness and what it is that they are doing that is compatible with producing the kind of results you want.

    WM: What do you tell employees who aren’t adapting to the economy’s new and often unpleasant realities?

    Kiev: You have to be a team player. It’s a natural inclination of human beings to take more risk in situations that aren’t working than to take risk in situations that are working. So the inclination is to hold on to losers and not to add to winners.

    Being able to know when to cut, know when to fold—it’s hard to do. One of the toughest things. And one of the first thing people should learn.

    WM: How do you manage morale in a time like this?

    Kiev: One conversation is, let’s compare what’s going on now to the past. And to what extent can you frame [what’s going on now] in terms of being time-limited. So that you know you need to slow down, lower your expectations. Being able to sit on your hands is a virtue that takes many, many years to learn. But that may be what you have to do.

    It’s important to encourage people to be more philosophical, to be more patient.

    WM: What tools from psychotherapy do you use?

    Kiev: Listening; reflecting.

    WM: What do you say to a trader who loses $200 million?

    Kiev: I think they want the chance to talk to someone who is not emotional, who is supportive, who has a philosophical view that this too will pass. In talking about it, it neutralizes the sting. It’s not like I have an answer. My answer is more generic. This didn’t work. That’s the nature of the game. This is the life you’ve chosen. Things will get better, they usually do.

    WM: There have been hedge fund managers who have killed themselves. And a guy who lost his job and killed his family. What could employers have done to manage that crisis better?

    Kiev: You have to do a psychological post-mortem and determine what clues people missed. What are the warning signs? What processes can you put in place to recognize who’s hurting and crying for help early on. It’s possible that there are other factors in his life. A supervisor could have been more burdensome, problematic or critical than what was warranted given the psychological vulnerability of the person who ultimately killed himself.

    Generally, though, even people who are in treatment and on antidepressants kill themselves. It’s so difficult to predict who is going to do it. More people who lose billions of dollars don’t kill themselves.

    WM: What have you learned about managing people?

    Kiev: Patience; tolerance; a sense that it’s very hard to change people. You are better helping people become more familiar with their strengths than focusing on their weaknesses.

    The human condition is such that everyone’s trapped by their earliest experiences, by things they’ve learned about the way the world is. That narrows the way they see things. So they keep seeing the same thing over and over again. The process of growth and maturity is being able to step outside that fixed way of seeing the world. There may be a way of being in the world where you are much more present in the moment. That’s what’s exciting about sailing or skiing or trading. You need to take a lot of information as well as your own emotions and try to be as present in the moment as possible without being too distracted by your goal of achieving ‘X’ amount of dollars. While you want to set up a goal and design your portfolio with profit targets in mind, you don’t want to lose your flexibility. It’s kind of a Zen state.

    WM: You were at SAC for 17 years. How did the company change, other than growing to nearly 1,000 employees?

    Kiev: I changed the culture from being individualistic to being much more collaborative. People talk about feelings, talk about goals, talk about strategies. We have a whole management team now and a huge HR department focused on this. They’ve got more people who are life coaches. People are willing to share information, who are willing to bring other people into meetings. There’s less competition.

    HR has introduced performance measures—manager assessments, 360 assessments. There’s a lot of dialogue at the firm about personalities. It’s a much more communicative culture.

Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

Schedule, engage, and pay your staff in one system with