The result of shifting organizational relations

The notion of market efficiency is fundamental in procedures, and employees also use it to make sense of the social space in which they work. Present in all the types of expertise, it is used in divergent and contradictory ways by the same employee, the same team, or the same company. But in order to understand these practices, it is important to situate them in particular temporal transformations. As Petry. Fichtner, and Heemskerk remark, the fact that thought leadership investors use indexes as benchmarks is a crucial element in understanding how the financial industry distributes money around the world. At the time of my observations, the classical investment method was considered a general professional standard— but one whose history was still relatively new. The way in which employees problematized market efficiency had to do with this recent transformation and with the memories of what it was replacing. This was all the more the case because this extension of market efficiency came with a change in the hierarchy among specializations. All the employees I observed and interviewed, in the United States and in Europe, problematized the change as a conflict between personal valuation and market efficiency. In this process, they highlighted that in a somewhat paradoxical way, the activity of traders was gaining importance in relation to that of financial analysts, salespeople, and fund managers. In this transformation, the concept of market efficiency, with its labile character and multiplicity of uses, remained the horizon of investment and valuation. Employees thus reproduced, in these conflicts, the understanding of the financial industry as the social space where this efficiency could be realized. In what follows, I first give an example of how this problematization was shaped by the way in which employees experienced their work in the financial industry over the span of their careers. I then show how classical investment transformed the relations between the different specializations at the time of my observations and how this happened in a way that strengthened the centrality of the understanding that the financial industry was the social space of market efficiency.

Some of the people I interviewed in the first half of the 2000s had been working in the financial industry for decades. They compared their situation at the time of our meeting to what they had done in the 1970s, 1980s, and 1990s. In doing so, they shared a general description of the changes, which they presented as a change from personal to classical investment. Carla, the fund manager I quoted above, had grown up in Italy before going to work in France as a fund manager investing in “Italian equities.” She then moved up in the hierarchy, initially managing a fund with a broader scope, “European equities,” and she finished her career as the head of the team of fund managers who specialized in this sector at the Compagnie Universelle, a major French investment management company. She retired in her midsixties, just before I met her in 2003. In the interview, she told me a story that I had heard in almost the same terms from other fund managers and salespeople I interviewed in New York, Paris, and London concerning the decreasing importance of the personality of the fund manager. Like many of these professionals.

The way Carla described the expansion of the classical investment method was shaped by her professional trajectory. She stressed, in particular, that which seemed to challenge the expertise that she had acquired and about which she expressed professional pride. The terms she used to describe this transformation—as a conflict between the personality of the fund manager and the legitimacy of the index—made sense as part of the relations between employees and their respective expertise and legitimacy. The relation between the concepts of the individual investor and the efficient market, with all its tensions and contradictions, is organized by the negotiations among employees, companies, and professions in a shifting process over time. For the people I encountered in fieldwork, this meant that professions whose legitimacy was based on the idea of an individual investor seeking the true value of financial assets were losing part of their power, while the use of indexes based on the idea of market efficiency and short-term trading both gained prominence.

At Brokers Inc., salespeople were at the top of the hierarchy based on remuneration and prestige, in line with the idea that their capacity to personalize valuation was the most important and most legitimate source of income for the company. As we saw in the previous chapters, the fees customers paid were perceived primarily as the result of the work of salespeople. The company’s financial analysts and traders tried to challenge this in different ways—in particular, by emphasizing the legitimacy of valuation practices on which they were supposed to be the main experts. Financial analysts were, in turn, considered to be in an even weaker position than traders. The employees I observed considered that the development of the investment method described by Carla, which also corresponded to Yves’s description of his own practice, was weakening the role of salespeople because a growing share of investment choices was already made in the construction of indexes. This gave increasing power to the financial analysts who worked at the companies producing the indexes to determine the list of available assets and their weights in the portfolio. But beyond these few central companies, this transformation actually meant that financial analysts and fund managers were less necessary, whereas traders saw their legitimacy as a source of revenue increase. This was accompanied by  discussions about their personal remuneration and the hierarchy among professions—in particular, because the decision about these amounts, as I could observe at Brokers Inc. and Acme, was explicitly unclear. These debates about the legitimacy of professions and their expertise were all organized around the conflict between the importance of personal valuation and the growing role played by indexes understood to replicate markets that were already efficient.