Culture Quant Framework

April 30, 2022

Culture Quant Framework

Convergence

Culture Quant Framework

April 30, 2022

Company culture, the shared values and behaviors that define how employees collaborate to create value for the enterprise, remains an enigma in the field of investing. Analysts intuitively understand its influence on investment outcomes and nod knowingly when presented with examples of effective or bad cultures. But measuring culture is a subjective exercise that is open to wide interpretation, even among employees at the same company. Culture has defied quantification at a time when researchers are numerically modeling every factor that has an impact on investment performance.

In the late 1970s, tangible investments were nearly twice those of intangible investments. Today, intangible investments are roughly one and a half times those of tangible investments. This shift has transformed the nature of business.

We believe our economy’s transformation from tangible to intangible assets is secular and early in its course. As a result, investors will increasingly recognize culture as a critical determinant of value creation. That means it will be the subject of critical analysis and measurement in years to come.

Given this reality, we reviewed legacy frameworks to quantify culture and found them to be well intentioned but generally inconsistent. They were also far too broad in their scope. We believe a new approach can add value. We studied how KPIs have evolved, how they are used, and what impact they have had. Our goal is to simplify the complex topic and to create a standard set of tools that investors can use to evaluate a company’s intangible assets.

We have identified employee retention as a significant indicator of culture.

Click on the PDF to learn about our quantitative approach to measuring culture and the framework we developed.

Download the PDF

Das Counterpoint Global Team ist bestrebt, langfristige Investitionen in einzigartige Unternehmen zu tätigen, deren Marktwert aus fundamentalen Gründen deutlich steigen kann. Ihre Portfolios sind in der Regel konzentriert und unterscheiden sich von ihren Benchmarks. Das Team besteht aus 26 Personen, darunter 16 Investment-Profis und zwei Disruptive Change-Forscher. Die Kultur des Teams fördert Zusammenarbeit, Kreativität, eine kontinuierliche Entwicklung und differenziertes Denken.

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RISK CONSIDERATIONS

There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk). Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk).

ESG Strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.

DEFINITIONS

“ESG” investment: Environmental Social and Governance based investment is an investment approach which takes explicit account of the environmental, social and corporate governance aspects of all proposed investments.

IMPORTANT INFORMATION

The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively the Firm”), and may not be reflected in all the strategies and products that the Firm offers.

This material is for the benefit of persons whom the Firm reasonably believes it is permitted to communicate to and should not be forwarded to any other person without the consent of the Firm. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient or otherwise. It is the responsibility of every person reading this material to fully observe the laws of any relevant country, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in that country.

This material is a general communication, which is not impartial, is for informational and educational purposes only, not a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. Information does not address financial objectives, situation or specific needs of individual investors.

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