As the value of assets managed by superannuation funds increases, along with the number of Australians who rely on them to safeguard and grow their retirement savings, the role of the chief investment officer has also evolved.
Three decades ago, CIOs were far more likely to be hands-on investors than they are today, when the role is more likely to mirror being the chief executive of a multi-asset, sometimes global, asset management operation. A CIO is often as much a people and business manager as they are a money manager.
The vastly more complex nature of their organisations has reflected the increased complexity of markets over the past 30 years. Staying focused on meeting the long-term objectives of fund members and rising above the day-to-day “noise” of markets is an increasingly difficult task.
How they do that varies. Some literally seek silence. Some actively create time and space for their teams, to allow them to reflect on the fact that the long term is what matters. Some put their faith in investment processes as a map through the chaos. Others don’t seek to avoid the market noise at all, but thrive on it.
“It’s a very good question and it’s probably going to become a more pertinent question going forward,” CIO of the $160 billion Colonial First State, Jonathan Armitage, tells Investment Magazine.
“The simple answer, in some respects, is actually just having a very clear process and being focused, very focused, on staying true to that process, not necessarily being derailed as you go through investment ideas, and focus on what is material, and ultimately what is going to make a difference to the returns for our funds, and therefore the returns to our members.”
Armitage says a lot of that does come down to process and being disciplined about following it. That’s not to say blindly; but a clear process is a solid foundation.
“If you’ve got a robust process in place, that does mean that you end up focusing on what is really going to impact the bottom line,” he says.
“And it then allows you to sort of separate – it’s a bit of a cliché – the signal from the noise, but I think it’s a very important one.
“This stuff may be interesting, but it’s actually not going to impact the bottom line of our funds, and therefore the returns of our members. So I think that is how you will do that. But I think the temptation, certainly over the last couple of years, to get distracted has probably risen, and I think it will rise in the next couple of years.”
The daily thrill
In his role as CIO of the $130 billion UniSuper, John Pearce says that after almost 40 years in the business he still loves the cut-and-thrust of daily market machinations, and sees himself as the captain of a team.
“I think a lot of other people in my position see themselves as more of a coach,” he says.
“They spend really a lot of their time thinking about the business, whereas I want to be on the field.”
As a consequence, Pearce says, “I don’t know if I’m above the daily fray” of investment markets.
“I really can’t put my hand on my heart and say that, you know, I completely shut out the noise,” he says.
“I think there’s some part of the noise that potentially is signal. In some parts of the noise, you’ve got to just try and work out where’s the signals?”
But doing that is “difficult, because there’s no formulas”, Pearce says.
“It’s one of those things where, [having been] so long in the markets, there’s something, there’s sort of an intuition there. And it’s not the signal that happens on a day, it’s how a certain signal might reappear over the course of a month, on various days.
“This news is coming out and look how the Aussie dollar has been trading; or look what’s happened to the yen; or look what’s happened to credit spreads. It’s sending the signal that that markets are not that worried about certain things as they should be, or they’re worried about things that we didn’t think they should be, et cetera. And that’s helping you build a medium-term view.”
Pearce says he always likes to have “a well-articulated reason for doing things”.
“People say ‘Why aren’t you involved Bitcoin?’,” he says.
“Well, first, I think it’s a crazy thing for someone to put someone’s life savings in. Let’s say I lose 30 per cent putting money in BHP versus losing 30 per cent in Bitcoin. I’m explaining to a member why I’ve lost money on BHP and I’m saying, well, the Chinese economy is floundering, et cetera, and iron ore is falling, or whatever. What am I going to say about losing 30 per cent in Bitcoin? I thought it was going up and it went down? That’s just not a valid reason.”
Pause and breathe
Creating the space and time to allow individuals to think, and to remain focused on what’s in the long-term best interests of members is “one of the most important things that we do”, CIO of the $60 billion AMP superannuation and investments business, Anna Shelley, says.
“I would say, for me, it’s all about time and space, creating the time and space, not just for myself but also for the team to focus on long-term issues. You have to be quite structured in the way that you do that, otherwise it just sort of accidentally pops up, you know, [during] Christmas holidays or something like that.”
Shelley says that keeping everyone focused on the best interests of members “is not [just one] person’s obligation”.
“It has to be approached as a team,” she says.
“Because, again, I think everybody gets distracted by short-term issues and by regulator and peer competition and all of that sort of thing. And so, to really be able to step back and focus on the big picture, the long-term issues, you do need that time and space, both individually and then as a team.”
Shelley says that in essence a team is “fundamentally, a bunch of diverse humans”.
She says managing them effectively requires understanding their strengths and weaknesses, “and also what they’re interested in, when their passions lie, and hopefully steer them more in the direction of their strengths and their passions, and protect them a little bit from their weaknesses”.
“You’ve got to work with the individual aspects of your team members, and then have that work as a dynamic, as a culture,” she says.
“And that’s something that you just constantly have to work on, trying to make sure that everyone gets on, that you’ve got the right forums in place, the right communication in place, so that people can share information and cascade information appropriately, and so that everyone gets the benefit of the buzz of ideas.”
Shelley says the right environment fosters a culture where “no one’s afraid to put their hand up and go, ‘No, I think that’s a stupid idea’; where you can handle conflicts of opinion and resolve them – which is not always that everybody agrees in the end”.
“Rather, you get to a point where everyone goes, ‘I can live with that’; there’s a compromise,” she says. “So it’s kind of like managing a mad, happy family – hopefully – at its best.”
100 per cent people management
As head of investment strategy for the $300 billion Australian Retirement Trust (ART), Andrew Fisher, says he seeks literal silence when trying to shut out the market noise.
“The honest answer, the best answer I can give you, is I go for a run in the morning where there is no noise, literally no noise,” Fisher says.
“That’s my one hour of thinking. And actually, I find myself getting quite short-tempered and frustrated if I don’t do that, because the noise can be quite overwhelming. That’s one thing I do.
“The other thing I do is try to be very selective in the news flow that I let myself fall into. I set aside a bit of time every Monday to get a download on all of the news of the past week and all the things that are coming up on that week that I should be across. And then after that, I’ll try not to see too much stuff, other than if I see something like…an interesting, conflicting view to that, I’ll pick it up as I look. I’ll look for the non-consensus over and above that.”
Fisher says it’s critical that no one in his team feels they can’t talk to him, and he consciously carves out time to spend with each team member. In addition, he’s keen to make sure everyone in his team knows when he’s made a mistake – a culture of covering things up or avoiding taking controlled risks for fear of failing is not a healthy one.
“When push comes to shove, in my opinion at least, you have to prioritise people management,” Fisher says.
“Through that people management, you ensure you’re delivering good outcomes, because the alternative is you’re disempowering people.
“So try to empower people and manage and give them all the support they need to make good decisions and try to avoid imparting too much of my own will over decisions in a direct way, which doesn’t mean I don’t impart my will over decisions, but it’s you do it in a more indirect way, through managing the people.
“From my point of view, I think my job is 100 per cent people, management and that comes with accountability, rather than saying I split my time between ‘Everyone get away from me. I’m making investment decisions right now’, and then I’ll come back to managing you later. I’m always managing people, and investment decisions are something that we all collectively do.”
Fisher says there was “probably a seminal period in my development” when he was at Sunsuper, before it merged with QSuper to form ART, when “it was made very clear that people management is a full-time job.”
“That was a concept and a principle and something that really appeals to me, that I find really helpful in doing this,” he says.
“I also have a very good teacher in this in Ian, because [ART CIO] Ian Patrick is very similar in that. Managing your team is the full-time job. It’s like that upside down pyramid of servitude model of people management. As a leader, your job is to serve your team. The team doesn’t serve you. That was another sort of really important principle in all of that.”
Staying on track
Sonya Sawtell-Rickson, CIO of the $90 billion HESTA, says a constant focus on the fund’s total portfolio approach helps keep everyone on track and focused on the important things. She says it provides “a deep understanding of forward-looking opportunities and risks across global asset classes, maintaining a disciplined focus on their long- and medium-term outlook”.
“This is integrated with our leadership in responsible investment to inform our long-term investment decision-making while being responsive to the dynamic market environment,” she says
Sawtell-Rickson says it is critical to ensure the fund’s investment portfolios remain closely aligned to the organisation’s overall objectives.
“It should help guide how you set investment objectives, construct portfolios, the investment culture you seek to build, and how you measure success,” she says.
“We align behind our purpose, which is to invest in and for people who make our world better. To fulfill this commitment to our members, we must deliver investment excellence with impact – providing long-term competitive returns while accelerating our contribution to a more sustainable world.
“This purpose has been embedded in our investment beliefs, our investment processes and our investment culture and capability.”
Sawtell Rickson says that throughout her career she has been “fortunate to have a number of amazing mentors, each of whom provided their own unique insights and advice”.
“One consistent message has been the importance of prioritising what truly matters, every single day,” she says.
“Practically, this is really about trying to be very deliberate and structured about how I spend my time, focusing on how I can best be of service to the team and organisation and add value for our members.”
Keeping things fresh
AMP’s Shelley says a crucial element of CIO longevity is “having the right people around them to, again, constantly provoke the curiosity, the post-decision analysis, the right thought processes, the right culture”.
“I would think where a CIO might get past their use-by date would be if they haven’t put enough care into the team, or they get distant, more distant from their team, and then perhaps they just get jaded with the with the role,” she says.
“Maybe the other one is, the CIO doesn’t sit in isolation with the investment team, they’re within a broader entity. And I think there could obviously be times where that connection with the broader entity, perhaps dissolves as well, or isn’t as strong as it could be. But I think we have seen some pretty long tenure across our industry, amongst CIOs as well. And so it seems to be that if they can find their niche, their right spot, and then hit their rhythm and build their team, you know, strongly, then perhaps that sets them up for, you know, longevity in their careers.”
Shelley says it is critical to delegate responsibility, “and by that, I mean I delegate complete outcomes to people and complete responsibility and accountability”.
“One of the good signs of that is when I go on leave, people mostly don’t need to bring me or text me or anything,” she says.
“Things can happen without me being there. And I think people have a lot of comfort in stepping up into the next role, standing in, and I think you can encourage that through making sure people have enough exposure across the broader organisation into other areas and other divisions, so that those other areas and divisions say, ‘Oh, it’s not Just Anna, there’s heaps of other good people’.”
“And then I’d like to think that apart from, you know, everyone missing me terribly, it wouldn’t be terribly impactful on how we run things if I was suddenly not there.”
CFS’s Armitage says the test of a CIO’s potential longevity is their ability to continue to advance and improve an investment process.
“Are you able to continue to adapt, grow it – not just the investment process, but the team that you’re working in?” he says.
“If those things start to change, then it’s possible that someone may be running out of steam a little bit, or an organisation has evolved to such an extent that actually a different skill set is needed in order for the organisation to advance.
“I don’t think it’s time-bounded, I think it is skill set-bounded, and not just the development of an individual, but actually the development of an organisation.
“Sometimes there are generals for battles and generals for wars, and the skill sets are different. That’s another appalling cliche, but I actually think it’s quite true.”
Paradoxical
ART’s Fisher says whether a CIO has a use-by date is “a really hard question to answer”, and may be indicated by their ability to continue to adapt to change.
“There’s the potential that there’s some structural change that comes along that just is too much for you to cope with,” he says.
“Everybody needs to be cognizant of their own well-being and their own capacity to keep bouncing back. It is a job that will give you a few knocks from time to time, but I don’t think it’s impossible to adapt. I suspect that everybody eventually has their capacity for adaptation that expires. But you can say the same of any role in that respect.”
Fisher notes that “there’s an irony to this, to an extent, because anybody that thinks that, actually won’t fall victim to it”.
“It is quite a paradoxical question, to some extent, because anyone that says ‘Absolutely not’ probably is so strong in their convictions that eventually it will be proven true for them.”
UniSuper’s Pearce says an orderly succession of key investment professionals is crucial for any fund and for consistently meeting members’ long-term investment objectives. Having been the key individual and figurehead for the fund’s investments for so long. Pearce is now actively devolving responsibility to other members of his team.
“There’s a chap by the name of Nick Footner [UniSuper head of asset allocation], who [in] almost every second meeting I say, ‘Well, you know, this is Nick’s baby’,” Pearce says.
“For 10 years we’d been [saying], well, asset allocation is primarily the responsibility of the chief investment officer to now sort of weaning them off that notion, saying I really want Nick Footner, even though I’m going to be accountable for the outcomes, I’m almost delegating to Nick Footner, because I want him to start developing, taking ownership of the running of that committee.”
Pearce says that’s partly because superannuation funds have become more complex and no single person can effectively manage all aspects of their investments; partly because if anyone were to be doing that it would simply be an unacceptable key-person risk; and partly because, at the age of 60, Pearce has realistically to consider a succession plan.
“It’s all of that,” Pearce says.
“I’m not in any hurry to leave. But it’s amazing: I turned 60, and the amount of times you get asked. Warren Buffett’s 95, so I’ve got 30 years to go. He can fail a performance test, though, and still keep his job.
“For better or worse, [in] an institutional setting, the board wants to see, in that that whole ‘run-over-by-a-bus’ scenario, there are people there that can make these decisions, and that’s real, practical and it’s very understandable why a board, an investment committee, wants to see those things in place.”
Pearce says that as superannuation funds have evolved, investment operations have become increasingly institutionalised.
“I wouldn’t say it was totally ad hoc before, but a lot of decisions that we made before were very much a discussion and an implementation, et cetera, very loose documentation, or no documentation,” he says.
“And it worked. I still say to this day it’s part art, part science, and it’s very hard to document art.”
