What Goes Into the Culture of a Successful Hedge Fund or Trading Firm?

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Written By
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Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

In the context of the culture of a hedge fund or trading firm, what makes a successful one?

We looked into the ideas of two of the most respected organizational psychologists, Adam Grant and Robert Kegan.

The ideas of Grant and Kegan converge on the idea of two main themes for culture in an organization:

  • development
  • original thinking

Hedge funds and trading firms need to prioritize not just the tasks but the thinkers behind them.

Kegan’s emphasis on personal and professional growth aligns with the need for traders and fund managers to continuously adapt in a very competitive game.

Grant’s focus on encouraging dissent and diversity of thought is important for avoiding groupthink, which is an issue in decision-making.

For investment managers or traders trying to add alpha, they have to be independent thinkers who take out-of-consensus trades and be right.

Together, these principles highlight the importance of a culture that is agile, reflective, and innovative, ensuring not just baseline survival but meaningful growth and advancement.

Of course, a lot of the discussion on corporate culture is filled with platitudes, so we’ll try to be as substantive as we can.


Key Takeaways – Hedge Fund Culture

  • Embrace Dissent and Diversity:
    • Foster a culture where diverse opinions are valued to avoid groupthink.
    • Encourage employees to voice their thoughts, even unpopular ones.
    • Ensures a richer pool of ideas for innovative solutions and robust decision-making processes.
  • Prioritize Proactive Innovation and Calculated Risks:
    • Stay ahead by proactively seeking change and innovation.
    • Encourage calculated risk-taking.
    • Well-managed failures can be a source of valuable learning and lead to the discovery of effective and novel strategies.
  • Commit to Continuous Development:
    • Adopt a Deliberately Developmental Organization approach (explained below).
    • Prioritize personal and professional growth, understanding employees’ developmental stages, and providing both challenges and support, ensuring resilience, innovation, and long-term organizational success.


‘Originals’ by Adam Grant

In “Originals: How Non-Conformists Move the World,” Adam Grant looks at how individuals and organizations can champion new ideas and drive creativity and change.

While the book doesn’t provide a direct list of top factors or qualities of great companies or organizations, it does emphasize several key themes that contribute to organizational success:

Encouraging Dissent and Diversity of Thought

Grant highlights the importance of fostering an environment where employees feel comfortable voicing their opinions, even if they go against the grain.

Organizations that encourage diverse perspectives and critical feedback are more likely to identify and address issues, leading to more innovative solutions.

Of course, there also needs to be a process of sorting out more credible opinions from less credible ones. It’s not about everybody having opinions on everything, which is not productive.

Proactive Innovation

Grant discusses the significance of taking the initiative to bring about change proactively rather than waiting for change to happen and being reactive.

Organizations that prioritize innovation are more likely to stay ahead.

For example, when there are bad market events that cause harm, that’s usually when traders/investors think about what they should be doing differently.

Improving their processes, whatever they are – e.g., diversifying, coming up with new income or returns streams – is a constant.


Grant talks about taking calculated risks to achieve innovation and change.

Organizations that are open to experimentation and learning from failures are more likely to discover novel and effective strategies.

Most people hate making mistakes and don’t like any failure.

But it’s all about managing risk rather than avoiding it.

It’s okay to make a mistake or fail if the cost is bearable because it had high perceived upside or some strategic benefit.

In other articles, we’ve talked about the concept of expected value.

If you have a 90% chance of failure and a $10 cost of being wrong but a 10% chance of success and a $1,000 payoff, would you make that bet (assuming you can afford the loss)?

Absolutely, because your expected value is very positive (+$91).

Plus, you tend to learn a lot more from mistakes than things going well.

Cultural Cohesion

A strong, positive organizational culture that supports the mission and values of the company is important.

Grant suggests that organizations with a cohesive culture where employees are committed to shared goals are more likely to succeed.

This could mean hiring for values as part of the process rather than overemphasizing skills and abilities.


Grant also highlights the importance of adaptability and flexibility in organizations.

Companies that can pivot in response to changing market conditions, client preferences, and other external factors are more resilient and better positioned for long-term success.


Effective leadership that supports and drives all the above factors is essential.

Leaders who are open-minded (but discerning), approachable, and supportive of innovation and risk-taking contribute to the success of the organization.

While these themes are discussed in the context of promoting originality and innovation, they also contribute to the overall success and effectiveness of organizations.


Kagan on Corporate Culture

Robert Kegan, a renowned developmental psychologist, has made significant contributions to understanding adult development and the psychological demands of the workplace.

His work emphasizes the importance of a continuously developing self in both personal and professional contexts.

In terms of organizational success and effectiveness, Kegan’s work highlights several key ideas that could be of value to a hedge fund or trading firm:

Deliberately Developmental Organization (DDO)

In the book “An Everyone Culture: Becoming a Deliberately Developmental Organization,” co-authored with Lisa Laskow Lahey, Kegan discusses the concept of a Deliberately Developmental Organization (DDO).

A DDO is an organization that prioritizes the personal and professional growth of its employees as part of its business model.

Kegan argues that such organizations are more effective, resilient, and capable of innovation because they tap into the potential of all their employees.

Of course, it depends on the type of business.

Bigger organizations are more fit for this purpose than smaller ones in many cases.

Constructive Developmental Theory

Kegan’s Constructive Developmental Theory outlines the stages of mental complexity and how individuals make sense of their experiences.

He suggests that organizations can support employees by understanding their developmental stage and providing opportunities for growth and development.

Knowing the stage leads to more tailored development support.

Supporting Employee Development

Kegan emphasizes the importance of organizations in providing support and challenges for employees to continue their development.

This support can lead to increased job satisfaction, engagement, and productivity, contributing to organizational success.

Creating a Holding Environment

Kegan talks about the importance of creating a “holding environment” within organizations.

This environment provides both support and challenge for employees, helping them navigate complexity and develop new skills and capacities.

Addressing Immunity to Change

In “Immunity to Change,” another book co-authored with Lisa Laskow Lahey, Kegan explores why individuals and organizations often resist change even when they genuinely desire it.

He describes this as “the ways in which your mental system may actually be in some ways making errors or distortions that keep you from letting new ideas come into your head.”

He suggests that be aware of and addressing these hidden barriers to change can help organizations become more adaptable and effective.

Overall, Robert Kegan’s thoughts on organizational success and effectiveness center around the continuous development of individuals within the organization, creating environments that support and challenge employees, and understanding and addressing barriers to change.


Summary – Hedge Fund Culture

So, what can we get from reading the works of two prominent psychologists and distilling in down into useful ideas for what makes a great culture of a hedge fund or trading firm?

Here are some key ideas that might be helpful to the culture of a hedge fund, investment manager, or trader:

1. Prioritize Development

Encourage continuous personal and professional growth to help traders and fund managers adapt to the competitive environment.

2. Encourage Dissent and Diversity of Thought

Foster an environment where employees feel comfortable voicing diverse opinions to avoid groupthink and enhance decision-making.

3. Promote Independent Thinking

Encourage investment managers and traders to be independent thinkers.

In the end, the consensus is already in the prices, so you’ll need to make out-of-consensus trades and make correct decisions to add value in excess of a benchmark.

4. Emphasize Agility, Reflection, and Innovation

Build a culture that is agile, reflective, and innovative.

5. Proactively Evolve

Take the initiative to bring about constant evolution rather than waiting for change to be forced by an external event.

This involves staying ahead of market events and continuously improving processes.

6. Embrace Calculated Risk-Taking

Encourage taking calculated risks and learning from mistakes/failures to discover better ways of doing things.

Understand the concept of expected value in decision-making.

Look into other fields like decision theory or ergodic decision-making ideas.

7. Cultivate Cultural Cohesion

Develop an organizational culture where employees are committed to shared goals and values, hiring for values as well as skills and abilities.

8. Ensure Organizational Flexibility

Prioritize adaptability and flexibility to pivot in response to changing market conditions, client preferences, and other external factors.

9. Provide Effective Leadership

Have leaders who are open-minded, approachable, and supportive of innovation and prudent risk-taking.

10. Support Continuous Employee Development

Implement Kegan’s ideas by becoming a Deliberately Developmental Organization, understanding employees’ developmental stages, and providing opportunities for growth and development, creating a holding environment within the organization to help them evolve by struggling well.