After years of running an investment program for a corporate pension plan, I was recently asked what it takes to be a good CIO. A tough question to be sure…and not one where there’s likely to be a single answer. But it occurred to me that one way to think about this might be to focus on a handful of key skills that, in my view, the job requires.
My hope is this might be helpful as fiduciaries evaluate their internal staffs and/or consider the option of outsourcing a part or all of the trust investment function. Admittedly, outsourcing continues to gain popularity among institutional investors, as my colleague Bob Collie noted last April. Whether internal or external, here’s a list of three proficiencies that occurred to me:
The ability to focus on the big picture in a dynamic world.
We all know that financial markets move daily and the financial media is constantly serving up new opportunities and risks for institutional investors to consider. Although the regulatory environment may be less dynamic, CIOs also need to pay attention to changing rules, identifying truly consequential adjustments that will impact how pension trusts need to be managed going forward. Constantly assessing the impact of these developments on the program’s key investment mission provides a touchstone as a CIO endures the inevitable process of prioritizing and re-prioritizing his strategic and daily activities in a dynamic world.
An awareness of fiduciary committee dynamics.
Fiduciary committees are populated by human beings. Effective CIOs are likely good at observing their Committee’s group decision making behavior. This means identifying who the leaders are and ensuring their perspectives are considered in developing rationales for key decisions, while also recognizing that leadership could be different depending on the topic. Satisfying the demands of the lead steer can go a long way in securing the desired approval.
Demonstrating clear logic in supporting proposals.
Fiduciary bandwidth is precious. Often these individuals’ investment committee responsibilities are a small part of their overall duties. Recommendations should be supported by a transparent, clearly presented and complete rationale. Adroit handling of the format and content of pre-meeting materials and ensuring that presentations are delivered according to the Committee’s preferences can be critical. Committee members should not be expected to search for data beyond these materials, and the level of understanding assumed should be appropriate considering these individuals’ investment backgrounds.
The bottom line is that truly effective CIOs are not just good investors, they are also good managers. While nothing on this admittedly partial list of skills is surprising, good CIOs looking to become better CIOs—or Committees considering how best to evaluate OCIO candidates—may find a nugget or two of insight to help them better serve their participant stakeholders.
These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
Investing involves risk and principal loss is possible.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments' management.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
Copyright © Russell Investments 2016. All rights reserved.This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.
UNI – 10895