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4 habits of highly effective CIOs

Executive summary:

  • Effective CIOs understand that their work is ultimately being done to help others
  • Successful CIOs prioritise what matters most
  • Strong CIOs delegate decision-making to the most appropriate party
  • Effective CIOs utilise an IPS to its full capacity

Throughout my decades-long career in the financial industry – including a 20-year stint as a chief investment officer (CIO) at a California public utility – I’ve either sat on or worked with numerous investment committees. It probably comes as no surprise, then, that I’ve seen a tremendous amount of variation in what organisations believe to be a best-practice approach to running an investment program. And, to be clear, I see this as perfectly normal, for the simple reason that each organisation has its own unique structure, mission and investing goals – so what makes the most sense for one doesn’t necessarily make the most sense for another.

Simply put, my time in this industry has taught me that there’s no one-size-fits-all approach to managing an investment programme. However, over the years, there are a handful of habits that I’ve noticed the most effective CIOs all tend to share. Of these, there are four that I believe make for the most effective decision-making. Let’s dive in and take a look.

1. Remember the people you serve

While these habits are in no particular order, I believe it makes sense to lead off with this one: Successful CIOs always remember that they are ultimately serving others. In this vein, an effective CIO will never lose sight of the fact that, at the end of the day, the purpose of their work is to help others get the most out of their assets. Whether this entails improving financial security for pensioners, growing the asset pool for a university involved in cutting-edge research or helping steer a non-profit through financial hardships, the work a CIO does is ultimately being done to help others.

I believe that recognition of this fact can go a long way in helping make a CIO’s job more gratifying – especially on those long days marked by back-to-back-to-back meetings and never-ending to-do lists. On days like these, it’s easy for many CIOs to forget their work is vital to helping others achieve their investing goals. I believe that the best CIOs in the business always keep the ultimate purpose of their work in the back of their minds, and even in the most grueling of times, are able to pause and take stock of the fact that what they do really does matter. Simply put, this links an organisation’s mission to fiduciary duty.

2. Prioritise what matters the most

As a former CIO, I know all-too well that the combination of a high volume of work and limited resources can appear insurmountable at times. To be frank, most CIOs have a much longer list of things to do than resources to accomplish them with, making finding a way to get work done in a timely fashion a real challenge. Take it from me: this can make every day feel like drinking from a firehose.

It took me awhile to realise this when I was a CIO, but the solution to this problem turned out to be rather straightforward: because I couldn’t possibly do everything on my to-do list well, I needed to pick and choose the things that were the most important for me to get right. In other words, what tasks on my list were most necessary to accomplish in order to drive the success of the investment programme? Were there specific tasks – like setting the asset allocation policy – that the bulk of the programme’s success hinged on? I noodled on this, ranked each task on my list in order of priority, and then set about figuring out how to make the best use of my resources – whether external, internal or a combination of the two – in order to get the job done.

For a real-life example of how this process can work, consider the management of a corporate pension plan. I’d argue that for a CIO, this task – getting the asset-liability management of the plan right – is the number-one thing that needs to be done correctly for the company to have a successful investment programme. For the organisation’s CIO, this means that focusing on asset allocation and hedging strategies is the ultimate priority – and should be addressed right off the bat.

The next step in this example is to move on to tasks that are slightly lower – but still of key importance – on the priority chart. For instance, a CIO might determine that evaluating different management approaches (active versus passive, single versus multi-manager, etc.) is priority number two, because getting this approach right means that roughly 90% of the goals of the investment program could be reached. The third item on the CIO’s list could be something that, if accomplished, would meet 80% of the investment programme’s objectives – for example, rebalancing, hedging and active management techniques – and so on and so forth. In my view, the most effective CIOs think through their investment programmes with this sort of a prioritisation framework.

The long and short of all this is that a good CIO will realise their limitations – that at some point, they can’t accomplish everything – and will turn to prioritising what matters most. I also think the most effective CIOs will find a way to work around these limitations. In some cases, this might mean leaning more heavily on external resources, such as partnering with a strategic investment-solutions provider.

3. Let those with the most information make the decisions

The third habit I’ve noticed among the most effective CIOs is that within good fiduciary practice limits they give the people with the most information on a particular topic the authority to make decisions on that topic. The ability of others to do this, of course, all stems from habit number two: the willingness of a CIO to prioritise the tasks that are the most important, and delegate the others to the appropriate parties.

But who is the appropriate party? And should it be internal or external to the organisation? In my opinion, this depends entirely on the staffing, resources and expertise within the organisation. Take, for example, decisions on money managers – who to hire, who to fire, etc. These calls could be made by a full-blown investment committee, if that committee has the bandwidth, interest and ability to discern the differences between the various managers.

However, in cases where the investment committee doesn’t have these abilities, it might make sense that manager delegation authority is with the head of each asset class, or to bring in a third party. For example, a manager research function could be delegated to an investment solutions provider, and then an internal staff could meet with candidates, winnow the list down to the best choice, hire that manager and report back to the fiduciary committee. In this case, the internal staff has the information and the authority to act.  In other instances, it might make sense to fully outsource to a strategic investment partner. Regardless of whether the task at hand is ultimately handled internally or externally, empowering those with the most information to make decisions allows for a more effective and efficiently run investment programme.

4. Use your investment policy statement appropriately

Last but not least, I believe effective CIOs make full and proper use of their organisation’s investment policy statement (IPS). By this, I mean that the best CIOs treat their IPS as much more than a have-to-do – by letting it serve as the blueprint for their entire investment programme, and culturally serve as a document of intention in times of question.

Now, this doesn’t mean that the IPS has to be overly long and detailed. However, from my vantage point, the IPS does need to be extensive enough to sufficiently address the objectives of an organisation’s investment programme, how the organisation’s asset pool will be structured to meet these objectives, and which party (i.e., fiduciary committee, internal staff, external asset managers, etc.) is responsible for satisfying each objective.

An IPS can be used to define what the overall reporting structure looks like. In my view, this means clearly defining which task is delegated to which party and spelling out the conditions the responsible party must meet in order to successfully complete the task. Put more bluntly, I believe an IPS should provide enough guidance for managers and strategic partners to know if they’re accomplishing everything needed to get the big picture right.

I would be remiss if I didn’t acknowledge that one of the roadblocks to doing this is a fear among some that if an IPS is written too specifically, it could land the organisation in trouble at some point. This is not an uncommon view in the industry and has led to many an IPS being crafted in a super-general way that is void of details. The problem with this approach is that it significantly hinders the IPS’ usefulness as a guiding document for the organisation’s investment programme. And while I understand the concerns around making an IPS too granular, I’d argue it’s prudent for organisations to strike a happy medium between super general and super detailed.

In the same vein, I believe it’s also crucial for CIOs to make sure that the IPS is up-to-date. In other words, any time big changes are made to the programme, the IPS should be modified as well. A strong CIO should view any significant recommendation that requires an adjustment to the IPS as a capstone to the change process. Regularly reviewing the IPS is just good fiduciary duty.

Finally, an IPS can be a useful tool in succession planning.  Think of it this way: If your organisation’s CIO gets hit by the red truck crossing the street on the way home or takes another opportunity, the people taking over will need to have some sense of how the whole programme operates.  The IPS can be that roadmap.

Ultimately, I believe that an effective CIO will understand the value of an IPS, write it at the correct level of detail, utilise it, keep it current and use it as a framework for reporting. In my view, the best CIOs understand and do exactly this.

The bottom line

To finish off where we started, I believe the most successful CIOs all share several key attributes. Among these, understanding who they’re working for, prioritising what matters the most, delegating decision-making to the most appropriate parties and utilising the IPS to its full capacity are tops on my list. While these habits are by no means an exhaustive list of all the qualities that comprise a strong and effective CIO, I firmly believe that the best in the business routinely exhibit these four traits.

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.