Since 2015, Trusted Insight has been polling senior institutional investors about the most important keys to success in their jobs. To date, we’ve interviewed more than 200 chief investment officers, managing directors and other senior LPs.
While their answers vary greatly, there are four simple, yet crucial tenets that investment professionals with more than 20 years of experience repeatedly expounded:
#1: Sound Governance Model
“Every day I think governance, governance, governance,” said Jonathan Hook, CIO at The Harry and Jeanette Weinberg Foundation, in a 2015 interview.
Governance, the institutionalized investment processes and procedures, is the foundation of any investment office. If the foundation is weak, then the institution will suffer.
“The organization needs to set up a good governance model, needs to follow the model, and if it does the success of the investment team will follow from that,” he added.
Jay Namyet, CIO at University of Oregon Foundation, believes that institutional governance “doesn’t get enough attention.”
“We have worked tirelessly in evolving our model over the years to a point where it was recognized by our peers last year as one of the best in the country,” he said in a Feb. 2017 interview. “I believe quite simply, good governance translates into good returns, while flawed models generate not-such-good returns.”
For Steve Edmundson, CIO at Nevada PERS, it’s important for the organization to be in sync in order to support decisions.
“You need to have a distinct understanding as an organization of what you're trying to accomplish and a buy-in from all parties as to the type of investment program you want to build,” said Edmundson in a Oct. 2017 interview.
#2: Find A Good Team, People
Yup Kim, senior portfolio manager at the Alaska Permanent Fund Corporation, said it best: “Institutional investing is a people business and emotional intelligence is essential.” And other seasoned asset allocators will agree with this sentiment.
“The number one thing I would tell people: choose a good team,” said Kim Lew, vice president and CIO at Carnegie Corporation of New York, in a 2015 interview. “You will get the best experience with a good team - a team of quality people who are going to invest time in developing you and making sure you are learning the lessons.”
If governance is the foundation of a well built institution, then one of the key pillars holding it up is people.
“I keep coming back to the people, because when I think about the greatest asset I've had over time it's the people I've worked with and worked for, providing me the insights necessary to make a credible difference between a good investment and a great investment,” said Lawrence Goldsmith, The Walt Disney Company chief investment officer, said in a Oct. 2017 interview.
In summary, a good or bad team may be the defining factor in one’s overall success. “If you have a good team you can work through a broken model, but it’s very difficult,” added Hook.
#3: Keep A Long-Term View
“Don’t panic,” said Robert Maynard, CIO at the Public Employees' Retirement System of Idaho, in a Jan. 2016 interview. “The worst time to make a decision is in the middle of a crisis. Have a plan and stick with it.”
By nature, institutional investors have an ultra long-term outlook when it comes to investing. And keeping that long-term discipline is often easier said than done during times of market volatility, or corrections.
John Hull, CIO at the Mellon Foundation, also encourages aspiring investors to “maintain a long-term focus,” especially when dealing with large pools of capital.
“You need to remain focused on the long-term, not worry too much about daily volatility and seek to invest with people that are of high quality,” he said in a 2015 interview.
Having served for Virginia Retirement System, Oregon Public Employees Retirement Fund and Illinois State Board of Investment, Ronald Schmitz is a living example of a disciplined long-term investor.
“The number one piece of advice is to truly be a long-term investor,” said Ron Schmitz, CIO at Virginia Retirement System, in a Dec. 2016 interview. “Don't just say it, but live it.”
#4: Explore Geographies Beyond The U.S.
As one chief investment officer put it, “Spend time in China, India and Brazil.”
Exploring geographies beyond the United States is critical in the world of institutional investing. That global perspective exposes one to other booming economies that have interesting investment opportunities.
“I think traveling globally early in one's career to gain perspective beyond the borders of U.S. investing is also important,” said Stuart Mason, CIO at the University of Minnesota, in a May 2016 interview. “You need to understand what's going on the ground sooner rather than later if you're going to be able to diversify the portfolio beyond the borders of just a Russell 3,000 Index Fund.”
Whether it’d be for diversification purposes or not, an investor should always be concerned with adding value to the portfolio. And adding value usually means seeking unique investments, which are often abroad.
“You can have a satisfactory career in the institutional and family office world by investing within established frameworks, but if you intend to add value, you have to seek out truly unique opportunities and embrace the notion of calculated risk taking,” Eberhart added.
“Equally important is understanding geopolitics, legal and judicial frameworks, economic history, demographic trends, human psychology, biological sciences, disruptive technologies, big picture themes, and connecting all the dots,” said Yup Kim.
Read our previous Trusted Answers series here.