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Trusted Answers: Are You A Team Of Generalists Or Specialists?

by trusted insight posted 5years ago 6945 views
A generalist approach offers the opportunity for enhanced collaboration between teams and creates a “big picture” view of investments. However, specialism still remains a necessity for many investment offices, particularly for those with a greater people resource. Most of the investment professionals we spoke to seemed to fall somewhere in-between, citing a comprehensive knowledge of different asset classes, with a degree of specialism, as crucial for both investment success and team cohesiveness.

In this week's edition of Trusted Answers, we look at some institutional investors’ insights on team structure:

When I first started, the team had a silo mentality, and there was little collaboration amongst asset class directors and analysts to share best ideas.
We have tried to construct an investment organization that is fairly flat to make sure the best ideas are escalated quickly and to get diversification in thought.

When I first started, the team had a silo mentality, and there was little collaboration amongst asset class directors and analysts to share best ideas. However, we have tried different ways to break down those barriers across the team, including opening up all manager meetings to each team member, education sessions for the entire team and analyst-only meetings to encourage discussion. This is an area we are continually trying to come up with creative ideas for improvement.
Scott Davis, Interim Chief Investment Officer, Indiana Public Retirement System
Read the full interview here.

We are a very lean team internally and then we leverage our consultants as an extension of staff. It works reasonably well because we, as the lean team, can look at investments at a high level, with a big-picture view, and then dive deep as needed or in the places where we want to go more in-depth. At the same time, we have our consultants who tend to be deeper in various areas, and they can bubble opportunities up to us. It gives us a top-down, bottom-up combination that works reasonably well.
Anne-Marie Fink, Then-Chief Investment Officer, The Employee Retirement System Of Rhode Island
Read the full interview here.

We are not big enough to have real specialists. Most of our meetings with money managers are with the full team so that we can cross-train in case we lose somebody, which is always a business risk in a system like ours. If you talk to the folks at L.A. Fire and Police, which is about 50% larger than our plan, they have some element of specialization. It's only when you get up to the jumbo state plans that you start seeing a lot of staff specialization and in-house money management. I guess L.A. county would be an exception, as the nation’s largest county pension plan, which has specialists. Anybody with a portfolio of $50 billion and larger can specialize, but below that level there's going to be a higher degree of generalization.
Girard Miller, Chief Investment Officer, Orange County Employees Retirement System
Read the full interview here.

Our model is different in that we have a combination of specialization and generalists.

Our model is different in that we have a combination of specialization and generalists. Most other institutions tend to go one way or the other, either fully generalist or fully specialist. Our CIO Jason Klein has been very thoughtful about our team construction. He has set the team up so that senior people are more specialized, but simply along the lines of public and private. The junior and mid levels are generalists and do a mix of public and private. That helps to make it less siloed within the team and more collaborative, which was intentional.
Novisi Nirschl, Director of Private Investments, Memorial Sloan-Kettering Cancer Center
Read the full interview here.

We have investment officers that cover different asset classes, for example, global equity, global fixed, private equity, real return, hedge funds, private real estate and some REITs… One of our senior investment officers is responsible for all the private markets and the alternatives, and one is responsible for all the global public markets. We do not currently have a Deputy CIO position, but we are exploring the potential to bring in that position. As CIO, I’m the one that's responsible and accountable for the investment section of the Plan.
Jeremy Wolfson, Chief Investment Officer, Los Angeles Water and Power Employees’ Retirement Plan
Read the full interview here.

First, I will describe the structure when I walked in the door four-and-a-half years ago. All of the titles were investment analysts, reporting to an investment manager. By function, some folks focused on certain asset classes over others, but they had generalist titles. In June 2014, I restructured the department, and we did add three junior positions called associate investment analyst. We created a layer where certain analysts, three positions, turned into investment officers, and that investment manager title also became an officer.

Today, this is how it looks: the investment team fully staffed is a team of 14, and is organized by key function areas: private markets, public markets, emerging manager program and total portfolio, and operations. Public Markets and Private Markets officers, each have two analysts and one associate analyst reporting to them, an associate analyst reports to the Investment Officer for Emerging Manager and Total Portfolio. Two administrative professionals report to the Investment Officer for Operations. The officers and analysts are encouraged and supported to pursue the CFA and CAIA program for their professional development.

The department is structured such that there is opportunity for growth and advancement. An associate analyst can move up two levels under the existing structure. By creating that growth opportunity, you can attract and retain staff.

How is it different than other institutions? I think a lot of institutions have it organized by function area. But because we are a team of 14 investment professionals, it is just large enough to specialize in something, yet small enough that you can be part of broader projects. The annual asset allocation and the tri-annual asset liability study are two examples of broad projects where everyone is involved.

I really modeled the structure from my experience at Northwestern, where I had a chance to work on so many different things. That was great for Northwestern, but it was also great for my professional development not just being pigeonholed to one thing.
Dhvani Shah, Chief Investment Officer, The Illinois Municipal Retirement Fund
Read the full interview here.

It was part of my vision that I wanted the team to be generalists. When I came, I felt that if ever the world had been neatly compartmentalized into public equity, private equity, real estate, etc., that the boundaries of the different asset sub-classes are weakening.

I want people who are going to understand all of the asset classes in which we invest, and when it came time to making a manager decision, they would be able to weigh a manager against all other opportunities...

The other reason I wanted generalists was the fact that while many of our decisions have to do with manager selection, a lot of what we do and need to do is to focus on broader asset allocation questions. How do we protect ourselves against inflation? How do we protect against deflation? Is real estate an inflation hedge?

...I want people to be able to engage with those big picture asset allocation questions and not simply the more silo-ed asset class questions. That has worked out extremely well. We do have a really robust dialogue amongst the group. I also think the fact that everybody is cross-trained on the portfolio, everyone has met all of the managers in the portfolio, really enables us to punch above our weight.
Kathryn Crecelius, Chief Investment Officer, John Hopkins University
Read the full interview here.

In order to make sure we don’t bottleneck the way our team flows, we have divided the universe in a not elegant way and not always a clear way. For half of the portfolio, Meredith is the primary and I am the secondary, and vise versa for the other half. When you are the primary of an asset class, your role is to support the directors with respect to those types of investments, help them do due diligence, help them to cultivate relationships, make sure that they have a developed and well-thought out strategy for executing in their asset class that is commensurate in our overall strategy for the portfolio. If you are the secondary, you are the devil’s advocate for that investment. Your job is to really come up with and think strategically about risks that may or may not be possible for someone really close to it to identify. We are also supposed to be able to think of alternatives to investing in that asset class that would get us the same thing in a more liquid fashion or a lower risk or a lower volatility way. You just want to look at it very objectively. You are not as close to it, not as intimate with the manager. You think about its role in the portfolio over its role in the asset class.
Kim Lew, Vice President and Chief Investment Officer, Carnegie Corporation 
Read the full interview here.

Trusted Answers is a weekly series that delves into some of the most pertinent issues within institutional investing, and shares some of the insightful responses from the 40+ institutional investors we have interviewed in the past year. Take a look at some of our other Trusted Answers.