Man In Suit (Possibly a successful asset manager, Chief Investment Officer or Chief Executive Officer?)

The Institutional-Quality CIO/CEO


As part of the requirements of allocators nowadays for institutional-quality operations, being an institutional-quality Chief Investment Officer/Chief Executive Officer is one of the required aspects. But in terms of both Chief Executive Officer and Chief Investment Officer job descriptions, what does institutional-quality behavior entail?

The Institutional-Quality CEO/CIO

From my coaching with CEO/CIO clients, I realize four major points that make institutional-quality CEOs/CIOs differ from others:

  1. Vocational Customization and Optimization (finding out what your key strengths are and outsourcing weaker areas);
  2. Elite Culture and Talent Development Practices (having a strong culture and indoctrination process; being able to guide your team, foster idea generation and trader-analyst collaboration, and unblock them);
  3. Clarity on Fund/Portfolio Construction and Expectations (knowing exactly what your expectations are for risk/reward, research criteria and/or others and making them explicit to executing traders);
  4. Clarification of the Decision-Making Process (both for allocators and internal use, clarifying the decision-making process is key. Who has final say? Do PMs have autonomy for certain trades? Can risk/compliance just a flag a trade or actually stop it?);

Vocational Customization

When I work with CIO/CEO clients in asset management, the first thing I do is a process of vocational customization. Or in short, tailoring your job so you do the things you’re best apt to do. Being a CIO/CEO might include everything from the investment and decision-making processes to talent management, raising capital, orchestrating fund administration, accounting, brokerage operations and many other aspects. Just on the influence and interpersonal aspects – what I cover as a coach – it’s not easy to count all the required functions.

It’s no news finance managers are usually great at the financial side but might not be in terms of managing others, selling and/or other aptitudes. So the first step in a prospective or existing CIO/CEO is to analyze their vocational alignment using a test like the RIASEC assessment. This assessment allows you to draw immediate conclusions (for example, CIO/CEOs with a high Realistic component will have a tendency to prefer real-world interaction versus written communication, high Enterprising will have a tendency to be good at selling, high Social will have a tendency to help others, and so on).

This vocational customization allows you to take out the parts that you do the worst at delegate them. A CIO with a very low Social dimension does not want to help or coach their talent – outsourcing to a partner or HR person might be a better fit. A CEO/CIO with a low Enterprising component does not inherently want to sell. They will be better off hiring a third-party marketer or having a dedicated marketing/IR person.

For a more complete breakdown of all the RIASEC dimensions and suggestions for different asset management roles, from CEOs/CIOs to traders/PMs and analysts, visit this article.

Elite Culture and Talent Development Practices

The highest-grade CEOs/CIOs are excellent at fostering talent. There are countless emotions and biases that can come up for traders, PMs and analysts, and as a leader, you have to be able to help them. Many of the times, if you are still investing, you will simultaneously be the coach and one of the players in the team. Having gone through your own journey is important to help others in similar conditions, but also to give you authority and authenticity as a leader. As they say, you can only take other as far as you have been yourself.

Your capability to recognize certain patterns in others, such as too much risk taking, not taking any risk, depending too much on collaboration or not collaborating at all, among many other behaviors, is key to helping you unlock traders and PMs, foster creativity, help resolve conflicts, or any other situation.

The actual talent assessment process is also important. You should have a multi-factor assessment template that includes basics like performance, number of ideas generated, but also contribution to firm processes, value skew and biases (e.g. letting losers run or staying within your comfort zone), as well as alignment with the specific company values you are trying to promote (depending on your asset strategies and liquidity timeframes, things like risk or thoroughness can be either a valuable asset or a liability in your team). And you should use this assessment – in conjunction with, for example, vocational assessments – to better determine allocation increases, promotions and compensation.

Remember, especially if dealing with institutional allocators and aiming for institutional-quality operations, that what matter is not the specific talent you currently have, it’s the talent development process. Are your assessments replicable for different people? Are your hiring criteria and indoctrination process repeated in every situation? Are your idea generation/trader-analyst collaboration brainstorms periodic and structured? Do you have a periodic “traders anonymous” session to help unlock problems in traders, also periodic and structured?

Clarity on Fund/Portfolio Construction and Expectations

Superior team performance in asset management begins with the Chief Investment Officer/asset manager gaining clarity on the expected portfolio/fund construction. Then, on how clear they communicate that to their PMs/traders. I’m not a finance expert – nor do I have expertise in fund or portfolio construction. But I what I do know is that fund managers that reverse-engineer needed returns and timeframe are usually very clear on what they want from their PMs. The ones that may have an idea but are unclear end up confused, and accepting drift from their team.

Starting with having clear expectations about risk/reward profiles, asset categories and other aspects allows the fund/portfolio manager to put together a team that executes in a surgeon-like manner. A Special Forces going in undetected, breaching and clearing, and exiting with impeccable timing and no more aggression than what is needed. That clarity results in a customization, a positioning, a sophistication of the asset management process. Fund/portfolio managers who lack this end up at the mercy of circumstances.

The Decision-Making Process

Anyone who has raised capital from allocators will know that one of the things that is most probed is your decision-making process. Allocators will probe you on who has final say over trades, what power does risk and compliance really have, under which circumstances can trades be exited outside normal circumstances, and so on. It’s important to know clearly what responsibilities each member of the team has, and what those mean in terms of authorizing/blocking an investment anywhere from inception to execution.

While the investment process can be – and should be – unique in its nature, with its own stage-gate process from idea inception to research to investment thesis to actual trade execution, what it’s important to know at the end of the day is whose responsibility it is. What will happen if a person leaves? What will happen if someone with equal authority disagrees on the investment? There is no right answer for the decision-making process. It just has to be clear.

Conclusion: Institutional-Quality Chief Investment Officer/Chief Executive Officer Execution

At the end of the day, more than just the Chief Executive Officer/Chief Investment Officer job description, an institutional-quality CEO/CIO is someone who can:

  • Focus on the core areas of specialty for them, delegating the rest to complementary people;
  • Effectively create a strong culture, and effectively retain and develop talent, unblocking them and guiding them to growth, assessing them carefully;
  • Be clear on fund/portfolio construction and articulates it clearly to their team;
  • Be clear on the actual decision-making process governing the investment process, from idea to trade execution;

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