Where do chief investment officers come from?

05 / 16 / 2018
by Charles Skorina | Comments are closed

Every year there are about 50 to 100 US nonprofit (tax-exempt) and family office CIO searches and that number will climb as more ultra-high-net-worth families (over $100 million AUM) form offices, create foundations, and hire professional investment talent.

PwC forecasts a near doubling in global AUM over nine years, from $84.9 trillion in 2016 to $145.4 trillion in 2025, and predicts the US share of this global wealth pie to rise from $46.9 trillion to approximately $71.2 trillion over the same period.

But where will families and institutions find these investment heads?  Asset owners want to know where to find good candidates, portfolio managers want to know what their chances are of landing a CIO job, and marketers for external money managers want to know whom to call.

Some families and institutions will select the OCIO option (outsourced chief investment officer) and place their assets with an outside firm, but most will choose internal management. 

As search consultants, we recruit and fill positions within three broad categories: nonprofit institutions, family offices, and the for-profit investment world of Wall Street investment banks, insurance companies, mutual fund managers, RIAs, hedge funds, and consulting firms.

All public pension systems, most endowments, and many foundations, health systems, associations, charities and corporate pension plans publish their fund returns and we use that information to rank and identify the top performing funds, chief investment officers, and senior asset managers.  Find the best performing funds and you are likely to find the best talent.

Most nonprofit funds over $1bn and about one third between $500 million and $1bn have CIOs.  In 2011, we counted about 1,300 CIOs and heads of investments at tax exempt institutions.

Today we track about 1,100 chief investment officers and another 800 up-and-comers in the nonprofit sector as the increase in endowments, foundations, and other nonprofits with a billion or more in AUM has been offset by a drop in the number of corporate DB plans.

Family offices: the best CIOs you’ve never heard of

Family offices employ excellent investment managers.  The trouble is, it’s hard to find them.  These investors seldom appear at conferences, in the media, or show up at public events because ultra-high-net-worth (UHNW) families like to keep a low profile.

Credit Suisse, in their Global Wealth Databook 2017, estimates that, in the US, there are 714 individuals with assets over $1bn AUM, 1,363 individuals with AUM of $500mil to $1bn, and almost 23,000 with AUM of $100mil to $500mil.

Much of this money is managed by banks, RIAs, trusts, and wealth management firms, but our best estimate is that one in five billionaires employ professional investors, which would give us 143 investment heads in the billionaire bracket.

In the $500 to $1bn AUM family category, we assume about ten percent, or 136, employ individuals managing family assets.

The $100 to $500 million AUM bracket is the hardest to calculate, but we assume that at least two percent, or 460 families, have at least one dedicated investment professional on staff.

That adds up to about 738 senior investment roles in the high net worth family office space.  Both Jason Perlioni, the CIO at Johns Hopkins and Alice Ruth, CIO at Dartmouth, for example, were recruited from family offices.

Wall Street and beyond

The third major source of talent – the for-profit money management world of Wall Street investment banks, insurance companies, mutual fund managers, RIAs, hedge funds, and consulting firms – presents a challenge to recruiters because, while it has by far the large pool of potential candidates, not all analysts, traders, or investment bankers have the right skillset for a CIO role.

CIOs manage people and invest with outside firms.  Asset managers select securities, buy companies, and do deals.  Those financial professionals who attempt the transition to the nonprofit and family office sector often find that they do not have the temperament or experience for what often becomes a management and administrative role.

(See our interview with Kim Lew, CIO at the Carnegie Corporation, on how she manages her time.)

There are notable exceptions, of course.  David Swenson, CIO at the Yale endowment came from Lehman’s corporate finance group, Jagdeep Bachher, CIO at the UC Regents was COO at the Alberta Investment Management Corporation (AIMCo), and Joseph Dowling III, the CIO at the Brown University endowment ran a hedge fund and managed his own money before joining Brown.

And just this month, Kelsey Deshler — head of manager research at BlackRock and former research head and portfolio manager at Credit Suisse – joined Carleton College as CIO, a rare hire from a Wall Street firm.  But, of the thousands of hopefuls in financial services eyeing the grass on the other side of the fence, few manage to jump the line and secure a nonprofit position.

That’s a pity, because there is plenty of talent in the for-profit sector.  Goldman Sachs, Morgan Stanley, Lazard, JP Morgan, AllianceBernstein, Citi, Bank of America, Prudential, NY Life, et al., employ hundreds of investment professionals managing multi-asset portfolios. 

Moreover, there are 364 independent wealth management firms with AUM over one billion who employ sophisticated investment teams.

And let’s not forget the 77 firms on my annual outsourced chief investment officer (OCIO) list.  They all have one or more seasoned investment heads. 

All in all, we probably have 1,000 senior managers with hands-on multi-asset investment experience in the for-profit sector and close to 1000 more up-and-comers.  That’s a sizable number of potential candidates and job openings.  Recruiters never sleep.

When we gather together all nonprofit CIOs, family office heads, and for-profit multi-asset investment leaders, and add another 2,000 succession-ready deputies – we count a CIO candidate pool of about 5,000.

Unfortunately, there is a speed bump in the road for those wishing to move to the other side.  Few non-profit funds hire from the for-profit sector and vice versa.  Take the University of Virginia (UVIMCO), for example.  When the school went looking for a CIO, they did not look far, recruiting Robert Durden from Texas Children’s Hospital, Houston, another nonprofit.  Board members are not rewarded for taking chances.

The only recent exceptions were Kelsey Deshler, noted above, and Brian Pellegrino, the head of the UPS pension, who moved to the Georgia Tech foundation as CIO.  But he was living in Atlanta, home to both UPS and GT, and on every recruiter’s top ten pick list.

Fortunately, family office heads are usually more open-minded when hiring a CIO.  There is no bureaucracy and when they like someone, they don’t ask for permission.