Peak-Performance Culture at Satori Capital and Crawford Lake Capital

Satori Capital is a Texas-based multi-strategy investment firm that currently manages more than $1 billion in assets. James Haddaway is chief investment officer and managing partner for Satori Alpha, Satori Capital’s alternatives investment platform, and for Satori XL, a program that provides acceleration capital to emerging investment managers. In this excerpt from Satori Alpha’s annual stakeholder update, James shares his thoughts on the importance of a peak-performance culture.

Culture: The Investment World’s Most Undervalued Asset

In evaluating Satori Alpha’s progress, I naturally spend a fair amount of time assessing quantitative factors such as performance figures. However, I also like to consider the qualitative aspects of our business, including the impact of our culture on our team, on our other stakeholders, and on our performance. To me, our pursuit of a “peak-performance culture” is an essential part of our success, and because I hear so little about this idea in the investment industry, I tend to think of it as our “secret sauce” or the “most undervalued asset” to those outside of Satori’s ecosystem.

It is fairly common in the hedge fund space for managers to find success when they are small because they are talented investors with an effective process, but then they falter as they grow. Why? I believe this often occurs because these managers do not understand their values, they do not hire well, and they do not appropriately invest in culture. They often fail without even fully understanding what they did wrong.

Throughout my career, I have seen evidence of this concept in many types of businesses. No matter how excellent a company is at pursuing and perfecting its strategy, if its culture is weak — or worse, toxic — the business will eventually feel the consequences. By the same token, a company that invests in and nurtures a strong, positive culture can improve its odds of success, lengthen its lifespan, and do right by all of its stakeholders.

A great example of this philosophy in action is the firm Crawford Lake Capital Management. Crawford Lake was the first acceleration investment in our Satori XL Partnership Program, and it has become a notable success in terms of growth, returns, and longevity.

We originally invested in Crawford Lake in 2013, when the firm had only $12 million in assets under management (AUM). Since our investment, Crawford Lake has grown to more than $1.1 billion in AUM, and at the same time, it has enhanced its culture while remaining true to its strong values.

For example, one of Crawford Lake’s stated goals is to “advance the personal and professional growth of employees in a cordial environment.” This is critical, because we believe nurturing a supportive environment that allows team members to find satisfaction in their work can help ward off HR headaches, increase productivity, and retain good employees over the long term — and that contributes to the firm’s overall ability to operate effectively. An oft-quoted statistic says that the average life span for a hedge fund is five years; Crawford Lake has already more than doubled that, and with its strong culture, we think it can go on much longer.

The impact of that extended longevity could be significant from a returns perspective. A $2 billion fund with reasonable economics should have gross revenue in a decent year of about $80 million. In our XL acceleration partnerships, we typically hold a 25% gross revenue share — that equates to a potential $20 million each year. I can easily imagine that a great culture and smart hiring could lead to at least an additional five years of duration — which could mean another $100 million for our stakeholders.

( Assumes 12% gross return, 1.5% management fee, and 17.5% performance fee. Actual returns could be significantly different. Performance revenue is directly linked to gross returns; if gross return is flat or negative in any given year, there would be no performance revenue for that year or for subsequent periods until returns reach the previous high water mark.)

Further, the manager and his or her team would earn several multiples of this, and the underlying limited partners would hopefully benefit from the additional years of solid returns. That does not even take into consideration the benefit of a positive culture in lean times, which even the best firms may encounter. A supportive culture may be the difference between a firm that falters when it hits a rough patch, and one that has the collective grit and cohesiveness to survive, regain its footing, and resume generating attractive returns. Of course we cannot be certain what the future will hold for any of our investments, but we are convinced that a positive culture like Crawford Lake’s improves not only the odds of success, but the ultimate extent of that success.

Our interest in peak-performance culture is also a critical part of how we fulfill our higher purpose of elevating humanity as we create value for all stakeholders. We often say that we consider it a privilege to act as stewards of our investors’ capital, and we also consider it our responsibility to be stewards of our team members’ careers and their well-being. Our team members devote their time, energy, and intelligence to the work we do together, and in return, we strive to ensure they work in a supportive, positive environment.

I love to share this way of thinking with the investment managers on our platform, and I think others will also appreciate a closer look at this key component of how we operate. For that reason, I have devoted this year’s CIO Perspective to a discussion of what a peak-performance culture looks like and how we strive to create and nurture it.

Defining Culture

We define corporate culture as the beliefs and behaviors that shape a business — in other words, what we think and how we act. On a daily basis, as we face complex decisions about hiring new employees, launching new initiatives, and serving our investors, our culture influences the path we take. Because culture pervades so many aspects of a business in this way, we think it is critical to define and create a culture that has a positive effect on all of our stakeholders.

At Satori, we define a peak-performance culture as one in which we are making measurable progress toward our clearly defined aspirational goals, powered by a team of people doing their best work in an environment they enjoy. That is the culture we continually strive to create, and below I share a few of the methods we use to turn that vision into a reality.

Identifying Values

If culture is what we believe and how we act, then at its root, it is what we value. Therefore, defining and shaping a company’s culture begins with identifying and articulating its values.

What is the business’ non-financial reason for existing — its purpose beyond profit? What kind of employees do we want to attract? How do we handle conflict? How will we know if we are on the right track? These questions, and many others, can illuminate the values that are important to a company and provide a “North Star” that can guide a business as it grows and changes.

At Satori, we defined six core values:

Create Extraordinary Outcomes — Go above and beyond. Even small things are big; find beauty in the mundane. Use your passion to inspire, and be inspired.

Be a Great Partner — Create value for others first. Position stakeholders for growth and success. Live authentically, communicate transparently, and always do the right thing. Build relationships that endure and matter.

Never Stop Learning — Stay curious, ask and be open, and strive for a deeper understanding of the truth. Anything is possible.

Share Freely — Seek to both teach and learn with patience, gratitude, and humility.

Enjoy the Journey — Exercise your mind, body, and soul with equal intention and vigor. Laugh at yourself, and laugh with others. Be present and find joy in every moment.

Build Lasting Impact — Consider future generations. Lead the way and be the change. Use our collective talents and resources to serve and elevate humanity.

We strive to keep these values in mind in our daily work, and we rely on them when important decisions or conflicts arise. When we are considering hiring a new team member, we might ask — is this a person who is curious and loves to learn? If we encounter a difficult situation with a vendor, we consider what it means to be a great partner. If we’re facing any kind of challenge, we remind ourselves that we are here to create extraordinary outcomes.

Beyond the articulated values, there are other elements of our culture that affect how we act and what kind of people will flourish on our team. For one thing, we exist within a somewhat paradoxical state in that we expect — and our work demands — extremely high performance, and yet we emphasize compassion and well-being for our team members. That means we want to ensure each team member is living his or her best life, but that best life must include a passionate commitment to getting even the smallest details right, from ruthlessly probing models for potential flaws, to haggling over the merits of the Oxford comma, to triple-checking everything we do. We have to find and hold on to people who can thrive in this incredibly demanding and yet deeply caring culture.

Having a shared language that defines who we are and how we will act as a company — and as individuals within a company — helps our team communicate effectively, act consistently, and unite behind a common purpose.

Emphasizing Hiring

Values are a set of expectations for how a company will operate, and the company’s employees bring those values to life. For that reason, it is critical to find not just great people, but the right people — not just people who will be great at their jobs, but people who will be great for the organization.

This is not a concept that is universally accepted. Many of the great investment managers I speak with have incredibly well-structured investment processes — they are detailed and consistent, and they increase the odds of success — but those same managers often have not taken the time to similarly build out their hiring processes. I would argue that they are missing an opportunity to give themselves a real advantage, especially when they are hiring a team member who will be directly involved with investing or who will lead the business’ operations or finance.

A recent episode of the podcast “HR Works” featured Jeff Hyman, chief talent officer at StrongSuit Executive Search, who cited an important statistic for employers: “50 percent is the average hiring accuracy.” In other words, most employers could bypass the entire hiring process and simply flip a coin on each hiring decision, and they would still have an equal chance of a successful outcome. As Jeff points out, you would not accept those odds in other dimensions of your business, so why live with them in hiring? Below is a pared-down description of our hiring process, including a few methods that we think increase our success rate in hiring effectively.

Spend Time on the Job Description: Before we begin crafting a job listing, we try to form a clear picture in our minds of what our ideal candidate is like — not only in skills and experience, but in how she conducts herself, works with others, handles obstacles, and exercises judgment. Knowing exactly what we want from the start means that it is easier to know when we have found it. We also highlight aspects of our culture and values in each job description. This serves the dual purpose of attracting people who share our principles and scaring away those who do not.

Look Beyond Pedigree: I think many employers overemphasize qualities of “pedigree” — resume items such as Ivy League degrees and previous employment with Fortune 100 companies. Top performers can and do arrive with all kinds of backgrounds, and we try to ensure we are qualifying candidates by more than just impressive credentials.

Looking at the world of sports, for example, you will find many professional athletes who have succeeded despite lack of pedigree. The New England Patriots’ Julian Edelman has played in four Super Bowl games and was named Most Valuable Player in Super Bowl LIII after racking up more than half of his team’s total receiving yards in the game. But there weren’t many who thought he was destined for that level of greatness — he was picked 232nd overall in the draft.

The same can be true for investment managers, as another example. As we discussed in a recent SumZero interview, we tend to follow a different strategy from most allocators, perhaps best exemplified by our investment in Crawford Lake. From the article:

“Our first acceleration investment, Crawford Lake, was with two guys with very non-traditional backgrounds. They were in Lakewood, New Jersey, of all places, they were more technical traders versus bottoms-up investors — they just did not have the traditional pedigree at all. But we thought they were amazing investors and risk managers, and they had an exceptional track record. They were at $12 million in AUM when we invested, and now they’re at $900 million [Ed. note — now more than $1.1 billion as of the writing of this letter], and they’ve built an institutional-quality business. So all stakeholders have done incredibly well on that one, and we never would have found them if we’d only been looking for the traditional background and only looking in New York.”

Screen Thoroughly: At Satori, we developed a six-stage hiring process that allows us to get to know our top candidates very well and assess them across many dimensions. The list below provides a high-level overview of our process.

Satori’s Six-Stage Screening Process

1) Phone interview with talent manager
2) Candidate completes writing sample, video interview, and Enneagram assessment
3) One-hour interview with hiring manager
4) Candidate creates case study and completes Harrison Assessment
5) Case study debrief / interview with multiple team members
6) Final round of interviews to explore any remaining areas of uncertainty

Our screening process also includes two dimensions that greatly increase our success rate and efficiency: 1) a deliberate procedure for moving only the top candidates through to the next hiring stage, and 2) the use of the behavioral descriptive interview (BDI) technique to more effectively assess candidates.

As we have developed our own effective hiring process, we have also shared it with the partners in our acceleration program, and we often help them source and interview candidates as their firms grow. Again using Crawford Lake as an example, we have assisted several times with its recruiting process, with positive results. Crawford Lake’s President and COO, Jeff Schachter, said, “Satori’s hiring process is very sophisticated, and it has been a critical component of hires that have been incredible additions to our team. Satori truly understands the significance of culture and personal values, and that aligns perfectly with our own passion for those important subjects.” We are always pleased to spread our philosophy about people and culture to our partners and help them growth in a healthy manner — and of course, their success benefits our investors, as well.

Measuring Progress and Fueling the Engine

After a company has identified its purpose, defined its values, and assembled a team of aligned top performers, it still needs to create frameworks to sustain motivation, alignment, and performance over time.

Creating measurable goals and tracking progress against them is a key aspect of this support, as it aligns individual team members with the goals of their business units, which in turn align with the organization’s overall goals. For much more on this subject, we highly recommend the book Measure What Matters by John Doerr.

It is also important to discover what motivates, fuels, and energizes team members so they will have the inner resources to self-align around those shared goals. For some, that might involve a great deal of autonomy and flexibility. For others, recognition and a sense of being valued are key. Because top performers tend to prefer working with other top performers, maintaining high standards in hiring and performance is critical for many. Some team members simply need to understand how they as individuals are contributing to an inspiring purpose larger than themselves.

At Satori, we provide a myriad of benefits for our team members, including daily healthy lunches, group workouts, an annual fitness allowance, in-office guided meditations, sports-therapy massages and adjustments, and flexible schedules. After all, the team members we hire tend to be so high-caliber that they could work anywhere, and we want to be sure they know how much we value and appreciate them.

These benefits are also wise investments for our firm. I have done some back-of-the-envelope math on what it is worth long-term to have employees feeling good after a healthy lunch vs. a plate of enchiladas, and the ROI is staggering. Thus, it creates value for all if we strive to ensure our team members are living their best lives, doing work they enjoy and find meaningful, and adhering to the pace and cadence they consider optimal — because that team will truly create extraordinary outcomes, which we believe increases the odds of better investment returns. In a way, it is just old-fashioned common sense.

Netflix uses this quotation from the author Antoine de Saint-Exupéry in its corporate culture manifesto, and I think it sums up the power of a peak-performance culture very well:

“If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.”

___________________
James Haddaway
Managing Partner and CIO
Satori Alpha / XL
alpha@satoricapital.com

Disclosures
The opinions, estimates, and projections expressed herein constitute the current judgment and opinions of Satori as of the date appearing in this material and are subject to change without notice.

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