There is an old quote famously attributed to Aristotle.
"Give me a child until he is seven and I will show you the adult."
Now whether he actually said this is impossible to determine. I suspect the ancient Greeks have suffered the same fate as Buffett. Every vaguely profound observation eventually gets attributed to them. Nevertheless, the idea has endured for more than 2,000 years.
The premise is really quite simple. Long before we develop our own beliefs, habits or ambitions, we're absorbing the values of the people and institutions around us. Spend enough time with someone's family and eventually certain mysteries begin solving themselves. The answers are always upstream.
Aristotle may have been making a point about parenting, but I've increasingly come to think the idea applies to institutions too. Historians often discuss institutions as though they're living organisms. Universities, churches and governments all possess peculiar habits that survive the people inside them.
The Catholic Church has weathered divisions, reformations and revolutions while mostly retaining the customs that have defined it for centuries. The faces may change but the institution persists.
Institutions, much like families, have a habit of reproducing themselves. Which brings me to funds.
Investors spend a considerable amount of time examining the child. We pore over fees, performance tables and portfolio holdings. We watch interviews of portfolio managers with a reverence usually reserved for star athletes. We debate whether a strategy will outperform, underperform or justify its existence altogether. Yet we can neglect a far more important question. Who raised the fund?
As a young person who spends an unhealthy amount of time online, I'm exposed to no shortage of fund marketing. Every turn of the market seems to arrive with a fresh basket of products offering exposure to whatever narrative currently dominates financial conversations.
Some fund providers remind me of ambitious parents who enrol their children in every extracurricular activity imaginable, desperately hoping to discover a hidden talent.
The child doesn't merely play piano, they also speak Mandarin, compete in robotics and are captain of the debate team.
The funds management industry has its own version of this behaviour.
We all know markets have become increasingly narrative driven. Whatever investors happen to be talking about today can usually be packaged into a product by tomorrow. But then (and with considerably less fanfare) many of these products disappear.
And indeed, I can acknowledge that funds management is not a charity. Asset managers are businesses and businesses are supposed to make money. There is nothing inherently wrong with launching products that investors want.
But at the risk of sounding overly puritan, I've come to appreciate the frustratingly dull parents. They are not the ones making grand declarations about the future and their shelves are not littered with the remnants of last year's excitement.
As a child absorbs the values of a household, a fund will inevitably absorb the incentives of the organisation behind it. Over time, those incentives reveal themselves in things like product design, stewardship and most importantly, investor outcomes.
We spend a great deal of time asking which fund we should own. The better question may be who owns the fund. As Aristotle might have observed, the child rarely escapes the influence of its parent.
Simonelle Mody
Also in this week's edition...
Conventional wisdom encourages retirees to preserve superannuation but David Knox believes spending more can improve lifetime income.
Dr Ruchith Dissanayake and Dr Ama Samarasinghe explain why the SMSF borrowing ban targets the wrong group.
Shani Jayamanne looks at a principle borrowed from game theory that will explain the next market crash.
David Tuckwell discusses why gold is back in the headlines but investors may be asking the wrong question.
A bond market reckoning may be beginning and Michael Collins thinks the consequences could reach into everyday life.
Steve Bennett and Sasanka Liyanage explore a little-known corner of the property market that is quietly benefiting from powerful trends.
Joanne Earl is back to share insights from her six months in retirement.
Curated by Simonelle Mody and Leisa Bell
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