I have been thinking a lot about generational change in the investment industry over the last several months. But nothing has hit me as hard as sitting on a recent Zoom call and realizing that, on this particular committee, five of the eight members will be gone by the end of 2024. The average tenure of the committee members is about fifteen years. How do you gauge this in terms of future decisions, potential relationships, or portfolio returns? I have suddenly felt very chastened- wondering whether this stability was a boon or a curse and how these experienced people may or may not be replaced, given technology advances.
My only solace is that I am not alone in experiencing or feeling this. On both the asset management and allocator sides, long standing relationships are being handed over to others. I worry — and celebrate. This business is one of trust, which deepens over time, as our experiences continue and broaden. I am concerned that this transition is being compounded by new and secular macroeconomic circumstances where gray hairs count more and term limits less. But I also celebrate that this industry has created frameworks and processes so that this can happen all within someone’s professional lifespan. I celebrate that our web and habit of building relationships will support those going forward even as they quite rightly discard lessons and processes of the past.
Let’s center on some basic facts within our industry. First, we all know and take for granted that allocator delegations of authority increase over time as committees and CIOs sit in the seats longer. Some programs have defined themselves by their level of stability and gravitas. Certainly, Chris Ailman at CalSTRS, Ellen Shuman at Carnegie, Robin Diamonte at RTX, and Jim Williams at the Getty Trust come to mind. But exceptional programs and those descriptive words do not really quantify the harsh reality of the cost of human turnover which the rest of us have borne. Keith Ambachtsheer, decades ago, crudely quantified the cost as somewhere between 50 and 100 basis points per year — just unimaginable moats for other investors and programs to overtake.
Second, we know that programs have become more complex and that committees are shying away from reviewing and approving individual managers. This trend and the knowledge that investment offices are expensive animals are accelerating the consideration of OCIO structures. The jury is still out on these decisions, and I believe the connection to the institutions and communities will have just as much impact as performance over the medium term. Finally, committee processes and cadences continue to lag the realities of decision-making. However, we did well during the COVID pandemic. Now the challenge is to find the hybrid model for both committee meetings and quicker decision-making. Also, there is more to come on how AI will help investment processes and ease administrative burdens.
My question to you reading this piece is: in the age of AI, is judgment diminished at the hands of quicker information and could the costs of a slower, more deliberate decision-making process be higher? I think the jury is still out or possibly just being picked. Whether the turnover leads to fewer or better long-term decisions, more manager turnover, and less risk taking is truly individual and indicative of unique circumstances. My only prayer is that we learn something from the truly great programs, and we aspire and inspire at every level possible. Being a survivor of the Hartford Healthcare debacle, I also fervently wish that this outlier and its tragic consequences are not re-visited someplace else.
Finally, I hope that those rolling off spend time with those rolling in before and after they take the seats. There is much to be learned and contemplated by honest discussions and constructive confrontations over glasses of wine. I encourage former committee members being in touch with present ones as circumstances change, especially if we go back to an investment environment like the late ‘80s or ‘90s.
Most of all I hope new committee members have the joy of discovering that collaboration makes individual efforts and programs succeed. I hope that new committee members will find that their service brings incalculable rewards to their community and themselves.
Cynthia Steer is a former CIO, recovering consultant, and current board member as well as avid gardener and swimmer.
