- The choice between specialization and generalization has evolved in the investment profession over the past 75 years.
- Specialization has become a necessity in modern finance due to factors such as internationalization, new asset classes and products, industry concentration, and quantitative investing.
- Generalists still play an important role in boutique investment firms and in coordinating efforts between specialists.
- The optimal skillset for investment professionals depends on their team’s position on the specialization spectrum and the pace of change in the industry.
The question of whether to specialize or generalize has evolved in the investment profession over the past 75 years. In the early days of the industry, generalization was the norm, as finance was not yet the global sector it is today. However, with the advancements in financial theories, asset classes, products, and technologies, specialization has become a necessity.
Specialization offers several benefits, as described by Adam Smith in “The Wealth of Nations.” Labor economists agree that specialization leads to improvements in productivity and skills. In the investment profession, specialization has transformed the industry, with global multi-asset managers investing in various instruments across different asset classes and markets. Specialization is now expected in most industry roles to have domain expertise in specific areas.
Four factors have contributed to the need for specialization in finance. First, internationalization has increased the demand for distinctive knowledge, such as understanding local market conventions and dynamics. Second, the emergence of new asset classes and products, such as alternatives and ETFs, requires specialized expertise to navigate. The consolidation of the asset management sector is another factor, as larger firms with expanded product lines require specialized talent. Lastly, the rise of quantitative investing has driven the need for specialized training in mathematics, science, and statistics.
Despite the allure of specialization, generalists still play a crucial role in the investment business. Boutique investment firms often rely on generalists due to limited resources. Generalists can also coordinate and lead efforts between different specialists, fostering collaboration. However, even generalists in boutique firms tend to have a unique value proposition that sets them apart.
The choice between generalists and specialists depends on the team’s specialization spectrum and the pace of change in the industry. In emerging sectors or areas with significant change, generalists may be more in demand. However, as the industry becomes more sophisticated and the pace of change accelerates, specialists become essential.
In conclusion, the investment profession has evolved towards specialization over the past 75 years. Factors such as internationalization, new asset classes, industry concentration, and quantitative investing have driven the need for specialized expertise. However, generalists still play a crucial role, particularly in boutique firms and in coordinating efforts between specialists. The optimal skillset for investment professionals depends on the team’s position on the specialization spectrum and the pace of change in the industry.
