Delegating Management and the Imperative of Justification

8This text studies the relationships among a set of financial actors that we can describe as follows: institutional investors, which notably can be retirement funds, pension funds, investment institutions, insurance companies, charitable foundations, or subsidiaries of banking groups specialized in enhancing the value of their parent company’s equity, who delegate the responsibility of speculating for them on financial markets to investment management firms. The investment management firms employ fund managers, also called portfolio managers. These are professional investors [4] who buy, hold, and sell financial securities (equity, debt securities, derivatives) for third party investors who have signed a delegation contract with the investment management firm that employs them.

9Asset managers put together groups of financial securities, called portfolios. These can be collective and open to an indefinite number of investors, in the case of undertakings for collective investment in transferable securities (UCITS), which are for example mutual funds (MF) or open-ended investment companies (“sociétés d’investissement à capital variable,” SICAV). To place capital in UCITS, investors subscribe for units of these UCITS and they sell them to disinvest. The securities grouped in a portfolio by asset managers may also be proposed to investors in the form of management mandates, which are portfolios registered in a single account, or in the form of funds dedicated to a limited number of persons.

10The bidding for shares of UCITS with different types of taxation institutionalizes the distinction made between “retail” and “institutional” clients of asset managers. We find this distinction in the forms taken by the marketing of management services according to the type of clientele targeted. We will exclusively focus on professional investors who work for institutional investors. To select management firms or asset managers, institutional investors employ portfolio analysts and fund managers among others. They also may get help from specialized consultants or call upon management firms specialized in “multimanagement.” When building portfolios composed of shares other than UCITS, fund managers and multimanagers differ from “direct” managers who build portfolios composed of active equities (Fig. 1).

Figure 1

The intermediaries between institutional investors and?financial?securities markets

The intermediaries between institutional investors and?financial?securities markets

11If we concentrate our observations on the relationship between asset managers and professional investors, it is not only because specific “distribution” channels of management services exist or because differentiated business organizations are created for each type of clientele. It is also because the institutions that make professional investors responsible for invested capital aim to make them comply with the image of the rational investor constructed by neoliberal economic and financial theory (Montagne 2006; Ortiz 2011). These investors only consider financial return on investment: by subscribing to shares in a fund or mandating an asset manager, institutional investors buy a variety of securities and hope that the value of the portfolio will increase so they can make a profit. On the other hand, other interests, especially the playful or intellectual kind, sometimes guide individual investments in financial markets (Lépinay and Rousseau 2000; Harrington 2008). That such interests also govern the behavior of individuals who place their savings with asset managers cannot be excluded.

12Professional investors are put in a situation where they are subject to the imperative of justifying their decisions by invoking their efficiency in obtaining the best financial returns that it is possible to reach within the limits of the constraints imposed by a given situation. It is in this context that their asset managers’ selection practices develop and that the unpredicted variations in portfolio prices take on the quality of a financial risk for them.

The Uncertain Evolution of Portfolio Prices

13Contrary to the value of securities such as stocks, the aggregate value of a portfolio, and the price of one of its shares, known as “net asset value,” do not immediately depend on the number of investors who wish to entrust capital to their manager. [5] It evolves according to the gains of the securities that it contains, since its evolution is nothing more than the linear combination of the evolution of the value of its holdings.

14The actors who speculate on financial markets face the imperfect predictability of price fluctuations at which the securities are traded, and therefore the returns engendered by holding and trading these assets. Consequently, portfolio managers indirectly provide their clients with a risky service, with uncertain results. By delegating the management of their capital to asset managers, investors run the risk of losing it or seeing it increase less in the hands of these managers than if they had invested it differently. The uncertainty affecting the managers’ capacity to procure large yields poses a practical problem for the actors responsible for selecting asset managers to whom they delegate the management of institutional investors’ capital.

15The empirical material for this research therefore lies in the practices of uncertainty reduction that are institutionalized in the figure of the rational investor.

Analysis Systems to Rationalize Decisions

16The delegation relationship introduces an imperative to justify financial performance that leads professional investors to rationalize their manager selection procedures. The organizations to which professional investors belong have developed sociotechnical systems and forms of labor organization that direct their actions and allow them to account for them according to principles acceptable to their customers (corporate officers, shareholders, etc.) considered to be rational investors. A study of these systems makes it possible to discover how professional investors evaluate the quality of the management services offered to them.

17Analysis systems take the form of symbolic tools and organizational procedures designed to tame the financial uncertainty affecting managers’ returns. Professional investors make two types of analysis. In their speech, as recorded in formal sociological interviews, in correspondence, and during the observation of interactions or the analysis of documents, these two types of analysis are classified in two categories called “quantitative analysis” and “qualitative analysis”:

18

It means that in fact we crossed a quantitative analysis of funds with a qualitative analysis. (A)
There are two stages in an analysis … there’s quant’ analysis, I mean quantitative, and qualitative analysis. (B)

Quantitative Analysis

19Interviewees give similar descriptions of “quantitative analysis.” According to them, it is a question of studying “how the fund performed during the different equity market cycles. What did it do?” (A). Analyzing a portfolio means “making a whole lot of calculations” (C) and examining its “history” with a whole mixture of perf[ormance] calculations” (D). “You put the data in the wringer to get something worthwhile out of it” (E).

20The classification of “quantitative analysis” is quick and easy because it is based on the common meaning of the term “quantitative,” which refers to the calculation of quantities. The latter are the returns from the evolution of the net asset value of a portfolio. Indeed, what asset management professionals call “quantitative analysis” designates the stochastic analysis of a series of past prices in collections of “net asset values.” It applies to previous returns of the portfolios analyzed, and it concentrates especially on their variability in the long term. It is this variability that creates the uncertainty affecting returns, and it is this that puts investors financially at risk.

21The statistical analysis of series of returns makes it possible to classify their distribution: is it regular or erratic, symmetrical or asymmetrical? Is it correlated to the distribution of returns on oil company shares or those of German companies whose market capitalization is small, or is it correlated to the profitability of the Brazilian stock market index?

22Statistical analysis is embodied in characteristic indicators whose use is stabilized by the programming of computer tools that automate the calculations. These measures are realized at their numerical value or by graphics in the form of diagrams. Some of the calculated indicators have been institutionalized, which means that they are systematically present in financial evaluation manuals and in courses on the subject. They are also integrated into the calculation routines of statistical analysis software developed for fund analysts. Among the absolute measures of the distribution of returns, we may mention the standard deviation of returns (and its extrapolation in the form of volatility), their coefficients of asymmetry and erraticity, the maximum historic loss recorded by the portfolio, and the length of time necessary to return to the previous level. The indicators used to characterize the distribution of returns in a relative way with respect to the distribution of returns obtained by a reference portfolio include, notably, “the” beta of the portfolio in relation to the benchmark, “its” alpha, the tracking error in relation to the benchmark, and “its” Sharpe ratios and information ratios. [6]

23Finally, statistical analysis of past returns aims to characterize portfolios based on their “behavior.” Thus by combining statistical measures of the variability of a portfolio’s returns such as its coefficient of erraticity or the tracking error and the beta coefficient of this portfolio in relation to a benchmark, a “quantitative analyst” creates categories of funds that he describes for example as “defensive,” “aggressive,” or suitable for a “core portfolio.” [7] Portfolio analysts try to assess the “management style” of managers whom they plan to contact (Aaron et al. 2005). They say they are trying to obtain a description of the “behavior” of portfolios, meaning the characteristic form of uncertainty that influences them. Hence, the words of this multimanager are typical when he explains that the statistical model that he uses ends up with

24

twenty explanatory factors that draw the equivalent of a karyotype for each fund for you, and in fact starting there you will find the means to reclassify the funds that have the same characteristics and you have the means to compare the categories of homogenous funds. You have a map, exactly like the human genome. (D)

Qualitative Analysis

25When trying to characterize the difference between the two types of analysis synthetically, an investment consultant remarked that “quantitative analysis” is based “on databases” but “qualitative analysis” is “a meeting with the manager, it’s more of a dialogue with the manager” (F). It is true that the search for “qualitative data” is based on managers’ statements, which explains why the meeting of managers with fund analysts stands as the emblematic interaction of “qualitative analysis.” However, the observation of “qualitative” analytical practices shows that data is not only collected during face to face meetings or by telephone, but also in questionnaires exchanged by e-mail or in documentation that management firms draw up to answer the concerns of their institutional clients.

26In the most structured speech I was able to hear, an investment banker differentiated three elements of “qualitative analysis”: first, organizational analysis of the decision procedures governing portfolio set-up and maintenance (the “management process”), then the study of the manager’s investment strategies (Godechot 2000; Tadjeddine 2000), and finally an examination of the management firm’s general organization and the guarantees it brings as a business partner:

27

We go see the manager. We study the management process: how the manager chooses his shares, how he values his shares, what does he base this on? Does he do his own research or does he rely on what the brokers give him? That’s the process. Is he more momentum, [8] I mean does he buy his shares because they’re trending, or is he contrarian and really has his own views and doesn’t care what the others are doing on the market? You see, that’s really it, and we try to find out what the manager is doing. So that’s qualitative analysis. Not including the analysis of the management firm. What are the team’s incentives? Is there a risk that key players will leave? The strategic analysis of the management firm. (A)

28Other fund analysts give examples of questions they ask themselves when they are conducting a “qualitative analysis”:

29

Is [the manager] analyzing his securities all alone or is a team of analysts working for him? Did he choose his values from scratch or did he just choose them from a short list he was given? Is he totally free concerning an index, or finally does his fund closely mirror an index? (C)
It’s to avoid buying a black box; know who is the pilot, what are his targets, his objective, his state of mind, the means he has to hand, what team he works in. (C)

The Place of Quantification in the Distinction between “Quantitative” and?“Qualitative”

30Whereas descriptions of “quantitative analysis” by the persons interviewed showed considerable similarity and relatively close wording, this is not the case for “qualitative analysis.” With the “quantitative” category, the actors of asset management have a symbolic form (Bourdieu 1977; Cassirer 1972) making the events to which it applies seem obvious. Of course, the procedures and objects of “qualitative analysis” have been institutionalized to a certain extent, which can be seen in the concept of “operational risk management” (Power 2005), used in the social scene close to asset management. However, if the actors often mention the notion of “due diligence,” [9] they more frequently describe singular operations that characterize “qualitative analysis”:

31

We try first to see if the firm exists. We try to meet the manager, see if he has a back-up colleague, see who is his custodian, to try to avoid meeting a Madoff. (D)

32Explaining “qualitative analysis” involves enumerations, descriptions of typical practices, and longer explanations than when it is a question of “quantitative analysis.”

33The contrast between descriptions of “quantitative” and “qualitative” analysis shows that the concept of “qualitative analysis” prevailing in asset management is obvious to a much lesser degree. It is a residual category, formed in the hollow of the imprint left by the positively defined category of “quantitative analysis.” For common sense, it is the exclusion of quantification that makes the qualitative, “what concerns quality in contrast to quantitative. The qualitative elements of a feeling, those that cannot be expressed by numbers.” [10] Finally, “qualitative analysis” points to all the operations that do not enter into “quantitative analysis,” meaning operations that are not the result of statistical analysis of past returns.

34It is the characterization of financial uncertainty specific to funds that differentiates “quantitative analysis.” Indeed, it involves the calculation of statistical measures applied to historical series of price fluctuation. In this regard, “quantitative analysis” designates analytical methods that rest on the handling of figures, but it is not quantification as such that is specific to “quantitative analysis.” Just as the qualitative category is in many ways a residual category of the quantitative category, it is remarkable that “qualitative analysis” points to all analytical operations that are not based on statistical analysis of managers’ “performance histories” or time series of prices. The empirical consequence of this fact is that “qualitative analysis” is not exempt from quantification. As a result, it includes quantitative operations, that is to say operations that imply the manipulation of quantities, even if these actions are marginalized in the representation given by the actors of asset management. The observation of the work of portfolio analysts and the analysis of “qualitative” documents convinces us of this.

35“Qualitative” analysts produce notes that contain figures, such as statistical descriptive performance indicators for the most common funds (overall profitability, standard deviation of return, metrics indicating the level of correlation with a benchmark). It is true that with these indicators, analysis remains in the embryonic reproduction of “quantitative analysis” assessments. However, other figures never appear in “quantitative” documents, but are specifically used for “qualitative analysis.” These are the indicators that do not cover the movements of portfolio prices but other quantities. Thus analysts calculate the turnover rate of portfolio holdings. [11] They also calculate for each fund the proportion of assets under management that was invested in this or that holding. This relative quantity constitutes the “weight” of this “line” in the entire portfolio. In moving “lines” that compose it toward or away from each other, the analysts break down a portfolio according to economic sectors, geographical areas, or other properties they use to classify securities.

36The quantification to which “quantitative analysis” refers does not mean putting into figures. It stands for the manipulation of preexisting quantities with the objective of determining new ones by calculation. As a result, “quantitative” also refers to the complexity of operations or to the mathematical virtuosity acknowledged in the actors who make them.

37Calling the statistical analysis of performances “quantitative” means forgetting the classification work on which rests the construction of spaces of commensurability on which the calculations depend (Callon and Muniesa 2003; Desrosières 2001). In other branches of the financial industry, this work constitutes the daily job of financial analysts who work for brokers (Zuckerman 1999; 2004) or in mergers and acquisition consultancies. It involves distinctive faculties of judgment that we usually associate with the definition of qualities. Returning to the reasons that led them to subscribe to one financial database rather than another, during the interviews many actors stressed their preference for the classification of funds proposed by the database with which they work. It was when invoking the importance of the job of classification that a portfolio analyst, to whom I expressed my first thoughts about the dichotomy of the types of analysis, put the distinction between the two types of analysis into perspective and cited the need of the team to which he belonged to combine the two in order to successfully analyze funds. Therefore, it is now time to turn attention to the connection between “quantitative analysis” and “qualitative analysis.”

Epistemic Complementarity of Two Knowledge Regimes

39As presented in sociological interviews and as shown in marketing presentation documents, the discourse of the actors of asset management explicitly suggests a way of connecting the two types of analysis. This connection is based on the symmetry of types of analysis, which can be found in the opposition between “qualitative” and “quantitative.” The shared knowledge of the actors of asset management sees in “quantitative” and “qualitative” activities the two ways that allow the collection of data on portfolios. Heterogeneous due to its “quantitative” or “qualitative” nature, this knowledge sometimes overlaps, at least partially, each in its kind. The actors of asset management present the two types of analysis simply as repertoires for action and interpretation that serve the same function by partly interchangeable means. According to this representation, each type of analysis makes it possible to extend the area of known facts without establishing however, the hope of exhaustive knowledge.

40“Quantitative analysis” provides useful data that it would be unreasonable (“idiotic”) to neglect by exclusively depending on “qualitative analysis.” Conversely, only a complete stranger to the matters treated would base his decisions exclusively on “quantitative analysis.” Nor is it a sufficient basis on its own for the decisions of a professional investor:

41

I don’t think there’s a single management firm that believes the past explains the future. They’re going to model the choice of managers only according to past performance. So they take it into account, of course, but … of course not looking at what the fund did before is completely idiotic, but selecting your funds only on, on the criteria of its past behavior, from a mathematical viewpoint, seems to me … As far as I know, no one does it. (B)
You can’t decide on an investment in a fund on quantitative criteria. Okay? For us quantitative criteria are in fact ways to understand. (B)

42“Quantitative analysis” is suspected of being reductive: “it gives you a very synthetic and a little too simplistic view of the thingamajig” (G), says the “research director” of a financial information firm. In the same way, a manager states that:

43

Past performance is really the only way we have to judge people, but it’s random, well … I wouldn’t say random, but incomplete. (H)

44Above all, professionals doubt the effectiveness of a study of past events for forming expectations They know the saying: “Past performance is no guarantee of future performance.” This warning is repeated by the actors:

45

We can’t promise future performance. So in general we’re going [to show clients] past performance, bygone which, well, isn’t necessarily going to reproduce itself. (I)

46Insufficient for accurate forecasting, quantitative analysis needs “confirmation”:

47

It’s not because [these portfolios] are good one year that they’re good the next. That’s why quantitative analysis is not enough. It helps to identify, but that’s really not enough. You need something else to confirm. (C)

48It is mainly the deficiencies of “quantitative analysis” that the actors of asset management focus on, and not so much those of “qualitative analysis.” In contrast, the deficiencies of “qualitative analysis” are not explicitly mentioned as such, but evoked in the form of regrets. Above all, it is the suspicion of epistemological illegitimacy, and mistrust concerning intuition, that are invoked to disqualify an exclusively “qualitative”-based analysis:

49

We’re not talking about a totally scientific profession. We may have built extremely structured investment procedures based on very deep analyses … So there are the quantitative factors. There’s a huge amount of research in our professions … There’s also of course a huge number of qualitative elements.?(J)

50Instead of being based on positive knowledge, “qualitative analysis” is suspected of integrating the actor’s feelings. For an analyst, “at the same time there’s also a bit of feeling, I’d say” (C) and a consultant adds:

51

There’s all the objective quantitative analysis we can do from our desk, using data we receive directly from the management firm, and directly from the databases, so the analysis which is moreover more objective than, uh, [correcting himself] quantifiable! And then there’s the meeting with the manager. Afterwards, what we look at in a manager in some cases are the elements that will give us some leads on what we’re looking for in a manager, but in fact when we meet someone we ask him questions and after that there’s, there’s, a part that’s feeling which is important too, and which is more difficult to express. (F)

52In the actors’ eyes, the incompleteness of each type of analysis and the only partial overlap of the knowledge that each one brings, justify the quest for completeness through the practice of both types of analysis.

53Attesting to the reality of the conception of types of analysis as knowledge regimes with the same value and the same status, the actors of asset management use the two types of analysis in symmetrical formulations:

54

In fact, we combined a quantitative analysis of funds with a qualitative analysis. (A)

55or:

56

I have a pretty global approach. I need to, I look at both the qualitative and the quantitative. (D)

57The partial overlap of the data provided by the two types of analysis is understood as a confrontation that makes it possible to confirm or reject the conclusions reached through the other type of analysis:

58

We already have some idea because we see it in the performance, but okay it’s just to get it confirmed. (C)

59Conversely, sometimes the correlation between returns on some portfolios and carefully chosen series are incompatible with some managers’ declarations and it makes it possible to contest their truthfulness.

60When describing their analytic activity, the actors of asset management use terms that distinguish two symmetrical epistemic regimes with the same value: the regime of quantity measured on an objective basis that can be shared, and the regime of quality appreciated by a person who does not know how to share his or her appreciation. In this perspective the uniting of regimes of incomplete knowledge certainly does not wholly eliminate the uncertainty relating to the results of financial investments, but it ensures the greatest possible risk reduction

Functional Complementarity

61There is a gap between the categories used by portfolio analysts to account for their own actions and what sociologists can observe. Contrary to what the epithets used for them may suggest, it is not quantification that draws the boundary between the areas of activity designated by “quantitative analysis” and “qualitative analysis,” but the function that these actions fulfill in the task of reducing financial uncertainty to which portfolio analysts devote themselves.

62Here we should point out the investment timeframe. It begins, ex ante, when investors hand over capital to fund managers for investment. It lasts as long as the clients leave the managers free to speculate. It ceases when the clients evaluate ex post gains or losses made by the managers and they consider once again, ex ante, the possibility of other investments that are more lucrative or better adapted to the constraints imposed by their liabilities. The next investment period then follows the first.

63“Quantitative analysis” takes a retrospective look at investment since it considers the returns obtained during previous periods. It produces measurements on which to base an appreciation of the success or failure of past speculation, where random alternation of success and failure makes for the uncertainty connected to this speculation.

64A complex system of interdependent relations unites economic agents (Weber 2010). By interacting among themselves, especially when they speculate on financial markets where securities composing asset managers’ portfolios are negotiated, agents incur modifications of asset values. Depending on the securities that enter into their composition, portfolio value does or does not profit from these changes. Returns on portfolios and their variability result therefore from the meeting between a state of the economic system and the singular action of managers pursuing speculative strategies. For this reason, the actors of asset management attribute at least partly to managers and management teams the responsibility for returns on portfolios, shown in the generalization of the term “performance” to describe them. Moreover, the uncertainty connected to profits is not a phenomenon exogenous to the social system; it is its direct product, even if the mechanisms that produce the variability of profits remain opaque because of the complexity of commercial and economic relations.

65Using statistical analysis of past returns and their variability, analysts adopt a probabilistic approach and assume, consciously or not, that a law of distribution of probabilities governed the succession of returns during the period under calculation. From this point of view, historically proven returns are singular realizations of this law and all these returns form a sample of events contained in the analysis period, with then unknown probabilities. Statistical analysis of this sample leads to a characteristic estimation of the law of distribution of probabilities that created it, and thus to express, ex post, the mathematical form of financial uncertainty to which the managers’ strategies exposed their clients. This is what the actors of asset management call the “behavior” of a portfolio. By determining it, analysts produce a substantive representation of financial uncertainty.

66The representation of financial uncertainty proposed by statistical analysis of returns on portfolios is the fruit of a centuries-old story during which symbolic instruments were produced and put into circulation (Brian 1994; 2009; Walter 2006; Pradier 2006; Jovanovic 2009) as well as the sociotechnical tools (Preda 2003; McKenzie and Millo 2003) that made its existence possible.

67For “quantitative analysis” measurements to effectively reflect the mathematical form of characteristic uncertainty of the social conditions that prevailed at the production of the returns and their variability, analysts must be sure of the permanence of these social conditions. Without this, their calculations will have no empirical basis. A minima, analysts only go on with “quantitative analysis” when they think they have a sufficiently long series of returns to be able to infer something about the form of uncertainty. Among others, they study:

68

What it [the portfolio] did, but taking the precaution that it’s always the same manager who managed the fund. (A)

69Once the “quantitative analysis” is made, the challenge for the analysts is to transform the retrospective appreciation of past returns into an object on which hopes for the future can be founded.

70Ex ante, when engaging capital, investors who believe that it is commercial interaction that causes profits in portfolios and not a cause ancillary to the social world, cannot pretend to act rationally if they are satisfied with retrospective analysis of returns on funds without checking if the social conditions that formerly resulted in a certain form of financial uncertainty are or are not present. The function of “qualitative analysis” is therefore to verify the existence of those conditions that allow analysts to project the characteristics of past uncertainty into the future.

71By an imaginary return in time that puts the analyst at the moment that immediately preceded the speculations made by the manager, the “qualitative” approach confronts the speculative strategies and the returns that resulted from them:

72

When you meet a manager, you’re obviously thinking about performance, you know about it and you’ve seen it in the quantitative analysis, but you need to know how he actually managed this performance. (C)

73Retrospectively, “qualitative analysis” determines the social conditions that produced the portfolio’s past performance. From a prospective viewpoint, “qualitative analysis” examines whether all the social conditions for the reproduction of past behavior are present. If they are, investors are empirically justified in taking the results of “quantitative analysis” for an estimation of the uncertainty that they are now facing:

74

When you really understand how a manager works, depending on the scenarios you know much better what to expect in the future, not knowing what’s going to happen doesn’t prevent knowing more or less “okay, it’s rather this that’s going to happen [meaning if the market conditions are this or that], this should work pretty well. If it’s more like this that it happens, it should be more difficult for him.” (F)

75The two stages of portfolio analysis are connected by a functional relationship: “qualitative analysis” specifies the conditions under which the measurement of uncertainty that “quantitative analysis” has attempted to determine estimates the risks taken by investors, and whether they are justified in using this measurement for an estimation of future risk. The two types of analysis therefore constitute the stages of the functionally differentiated procedure by which fund analysts form a subjective and reasonable estimation of the risks inherent to management service, which is dealt with by this analyst as sufficient elements for persuasion – despite the absence of absolute certainty:

76

Afterwards, once you get to the point of an upstream approach, you take the plunge like all investors, and that means I go for it, or I’m convinced or unconvinced or not convinced enough; but if I’m convinced enough, I take a ticket on the XY fund and get the ball rolling, and we’ll meet up in two years’ time. (G)

77With portfolio “qualitative analysis,” investors try first, via the interaction of managers and markets, to determine the social causes of the variability of funds and then to make sure of the permanence of these causes, which allow them to use all past returns as a sample of realizations of a random variable.

Classification of Activities and Social Division of Labor

78Sociological observations show that the actors of asset management only give an inadequate representation of the technical meaning of their analytical practices.

79Social agents are never immediately confronted with the sensible world and the forms of classification they use to describe it are products of the social world (Durkheim and Mauss 1903). Their perception and their memory are collective, structured by the categories that are given to them by the society that precedes them (Halbwachs 1925). As a result, the primitive forms of classification are not derived from the primordial dimensions of the sensible world, but from the organization of primitive societies. Consequently, the sustainability of forms of classification cannot be explained by their consonance with sensitive phenomena but by their affinity with a form of social organization (Douglas 1964). It is for this reason that the interpretation of the opposition between analytic types given by the actors of asset management does not take into account the meaning of their actions. However, recourse to the quantification category for classifying practical operations of portfolio analysis can be attributed to the organization of the society of financiers and the historical procedures of the structuring of this singular society. It goes hand in hand with a certain form of the social division of labor. So far, this article has sketched the practical side of such a social division of labor, which now must be connected to the differentiation of individual and collective actors within this social area.

80The classification of portfolio analysis activities reflects a social division of labor ignored until now. The analytic operations are divided between analysts according to whether they are “quantitative” or “qualitative,” allowing the observation of a relative specialization of these workers. The actors of asset management thus distinguish “quantitative analysts,” called “quants” (English pronunciation) and the other portfolio analysts. This classification crosses the entire field. While major multimanagement firms maintain two analysis teams, one “quantitative” and the other “qualitative,” both of them autonomous, we can already observe employees labeled “quants” in firms that employ only a handful of managers and analysts.

81The division of labor among individuals reproduces the social distinctions made by the institutions producing the differentiated capital that these individuals may possess. They draw on the heterogeneous technical resources they have acquired during the course of their socialization, especially in schools or in previous jobs. For example, such resources for the “quants” are a command of the rules that govern calculation practices, or for the “qualitativists” the knowledge of psychological types or the rules of organization analysis. In this way, the director of an analysis unit attributes the division of labor within his team to its members’ resources:

82

We don’t have the same training, the same career path, the same history, the same seniority, or the same personalities. So at the end of the day we all have our plusses and minuses. I have, for instance, a colleague who comes from reporting. She has always done reporting. So she excels in the use of IT tools, in macros. She’s very methodical, very thorough. And that’s something that’s extremely useful. Well, she had a lot of trouble, well, she’s better on the quantitative than the qualitative. As for myself, my career has been very much in marketing, very general really in market activities. The quantitative part is much harder for me; I’m much more at ease in the qualitative part. (C)

83The distribution of tasks between “quantitative analysis” and “qualitative analysis” also follows the distribution of decision-making power, which grows with seniority in the profession.

84It happens that “quantitative analysis” operations are characterized by a high degree of automaticity and routine that allows for extensive use of computing machines to make highly institutionalized calculations (the “wringer”). Indeed, in the contemporary practice of fund analysis, “all the quantitative part is just pushing buttons and that updates it” (F). On the other hand, “qualitative analysis” claims to use personal judgment informed by years of experience. The actors of asset management are conscious of this contrast, which in their eyes justifies the relative subordination of the individuals dealing with “quantitative analysis.”

85In a multimanagement firm, the two “quants” are both the last hired in the analysis team, and receive the lowest salaries in it. The sales director at another management firm confided during an interview how she had adroitly managed to showcase her “quantitative” competence in order to valorize an average degree and obtain a first position, then moved away from “quantitative” as she gained seniority in management. In investment consultancies, workers who are both young in age and young in the profession are first given “quantitative analysis” before performing the most mechanized tasks of “qualitative analysis,” before doing those where there is greater autonomy. These examples show that the demonstration of excellence (normal or extraordinary) in “quantitative” tasks is a paying strategy to gain access to the higher value positions, which are also less “quantitative.”

86

So the phase of preparing the questionnaire is usually done by the senior consultant, who is the closest to the client… I practically never dealt with that or, if I did, it was for rereading or suggestions, but it was really not decisive work [that I was doing there.] … For analysis, the higher you go in seniority the more you’re handling the interesting parts… I started with performance analysis. That’s … pretty easy since you have data; you process it in Excel. No need there for qualitative judgment, to judge the data. Then we have operational systems … that are usually the same ones, which have more or less the same characteristics … so that’s why it can be delegated to juniors. And then later we come to investment procedures etc., things that are a little more interesting… The first thing [that explains this hierarchy] is going to be the risk of an error of judgment. So let’s say that for performance, we’re going to look at the Excel formulas and if they’re well done, no problem. For the operational system mostly we know which firms will have good operational systems … [on management procedures,] you still have to have good judgment and have seen lots of transactions to see what is really adapted. (K)

87The hierarchy of portfolio analysis tasks can be attributed to the history of asset management and the consecration of this activity as a profession, in the sense that Abbott (1988) gives this to term. The professionalization of asset management led to more systematic recourse to recruiting individuals with degrees from the elite schools of business or engineering and the creation of university courses explicitly oriented towards this type of employment (Kleiner 2003). As a result, the technical competence associated with “quantitative analysis” is required for every new recruit to the profession. However, the length of “experience” is supposed to confer on the older investors the faculty of judgment necessary for interpreting qualitative data, which suits their responsibilities so well.

88The classification of analysis tasks covers the institutional forms of cultural capital acquisitions. Moreover, the characteristic properties of these tasks cover the principles of power distribution within the universe of intellectual labor, according to whether the judgment exercised is the result of mechanical rules or whether it formally resides in people. The conditions are thus met for the development of a structural homology between the area of analysis tasks and the area of positions in portfolio analysis teams, which can in fact be observed.

Rational Investor Seeks Professional Manager

89Each type of analysis possesses elements based on which the actors of asset management can see a certain value in their efforts to reduce uncertainty. “Quantitative analysis” directly concerns the profits that investors look for in fine. It also benefits from the recognized objectivity of quantities; quantification reifies things and allows them to circulate among the agents who share the same calculation conventions. “Qualitative analysis” attempts to reach social causes that are supposed to produce the returns obtained, and it is based on conceding faculties of superior judgment to the most experienced agents. Since each type of analysis has a recognized form of authority, it is not surprising that they both receive equal value and that promoting the use of both constitutes for social actors a means of positioning themselves in the management field. In addition, preaching their equality in diversity is to defend the society of asset managers as a whole against the challenges facing the professions that compose this society.

90In fact, the actors of asset management ordinarily experience the failure of their speculative expectations: “A good manager, when he’s right in about sixty percent of his decisions, it’s already exceptional”?(J). Nevertheless, portfolio analysis is all about the demands that professional investors must meet for justifying their investments according to the criteria of instrumental rationality, in other words by enlisting the register of technical effectiveness. Portfolio analysis replies to this by affirming the possibility it offers to investors for reducing the risks to which they expose invested capital. It is precisely the frequency of failure that casts doubt on the technical effectiveness of their efforts to reduce risk. The repetition of failure highlights the gap that remains between subjective risk reduction, which has allowed actors to take the leap and invest, and the absence of the objective reduction of this risk, which should have forbidden them to take the leap, according to this register of justification. Repeated failure makes it seem that speculative successes are due to good luck, as in fact scholarly financial orthodoxy contends (MacKenzie 2006). It undermines the credibility of justifications that base investment decisions on the instrumental rationality of portfolio analysis practices that do not meet their aim. Finally, it limits the justifying value that professional investors may attribute to the analysis of past results. It thus spreads an odor of illegitimacy over the analysis of past results. The disqualification of “quantitative analysis” is seen in the accusation that the interviewees threw at each other of only having faith, and wrongly so, in the recent “performance” of successful managers, whereas it is necessary to look at their “management procedures.” This is how they sometimes minimize the role of “quantitative analysis”:

91

For us quantitative criteria are in fact a means for understanding… The main lens through which we’ll look at a fund, to know, to get an idea of its interest or lack of interest, is the qualitative prism. (B)

92The effectiveness of analysis practices being found lacking in view of their aim – reducing the risks taken by investors – these practices are organized in a framework of constructing procedural legitimacy for professional investment practices, itself based on the demonstration of asset managers’ professionalism. No doubt we must see in this the monopoly that those who hold positions of power among institutional investors are trying to assert over “qualitative analysis.” “Qualitative analysis” is effectively organizing the deployment of asset managers’ strategies and speculative strategies; it enables them to establish their professionalism and their conformity to professional standards.

93Simon (1976) makes an argument that seeks to explain the authority of procedural rationality. According to him, the complexity of problems that organizations must solve sometimes outweighs the cognitive faculties at their disposal and is an obstacle to a resolution of these problems that would be rational from a substantive standpoint. Accordingly, they set up rational procedures in that they make it possible to obtain a satisfactory solution to complex problems at a lower cost.

94Showing through an evaluation of their organizational characteristics and professional practices that selected asset managers’ speculative strategies conform to professional standards confers on professional investors the legitimacy of procedural rationality. The opposition between the analysis of asset managers’ performance and the analysis of their organizational characteristics and practices thus takes on another meaning: “quantitative analysis” reaffirms the finality of investors’ actions – to grow their capital. “Qualitative analysis” frees them from the responsibility for the possible unhappy consequences of their decisions by invoking the procedural rationality that led them to make them.

95Subjectively, the goal of portfolio analysis is to reduce risk enough to create confidence in future economic conditions so that investors are induced to speculate. Objectively, its function is to free professional investors from responsibility for the failure of the managers they have chosen. The reconciliation of these two objectives is ensured by the legitimacy accorded to portfolio analysis procedures.

96By providing matter for an assessment of the conformity of the means used by asset managers with professional standards, the procedural rationality that characterizes “qualitative analysis” legitimates professional investors’ decisions; it protects them from reproach if their decisions ultimately end up being irrational from a substantive standpoint. Therefore, “qualitative analysis” guarantees the tranquility of professional investors:

97

And so somehow our theories … let both the managers and the people among the investors who follow the managers off the hook. So everybody’s happy, even without really being convinced of this theory, happy to have this theory on hand. So there we’re in the clear [vis-à-vis the hierarchy].” (L)

98The fact that “qualitative analysis” has a procedural and not a substantial value is manifest in practices such as the gap between the decisions that investors take personally or professionally. In the first case they take decisions they judge to be adequate to the goals they have set up. In the second case, their actions will be assessed in the light of their conformity to prevailing professional standards:

99

There are a lot of people who make different personal choices, but as for me when the market was at [a high point] I sold everything. But if I’d still been in charge of management [in the firm that employs me] I never would have taken the risk of selling everything, not what [my firm] had! Because if the market had risen and not dropped, you were fired immediately. (L)