Backing companies led by a quality CEO has always been important in the eyes of professional investors.

But big investors argue that in a low growth world making the right call on so-called qualitative factors such as the quality of management has now become a crucial part of investing.

Joel Fleming, a fund manager at Yarra Capital Management, is another manager placing great emphasis on assessing the skills of a listed company’s CEO.

He says too many CEOs are focused on promoting their company’s potential upside when the best managers focus on protecting against downside risks as well.

“Founders are very optimistic about what they can do because they are so passionate about it.

“Most CEOs we meet are very good promotors of what they can do but there can sometimes be a gap between what is promised versus what is delivered, particularly in terms of earnings and cashflow. The best CEOs tend to underplay what they can achieve,’’ he says.

Read more…. (subscription to The Australian Financial Review required)