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Lessons From the Desert

A Western CIO — David Holmgren of Hartford HealthCare — goes to the Middle East to learn from a Sheikh.

  • By David Holmgren

On November 4, I packed an Armani suit and a bottle of sunscreen and boarded the 8:05 a.m. British Airways flight out of New York's JFK airport. Why the sunscreen? I was headed to Kuwait and I'm bald, whereas Kuwaiti men wear protective headgear. Institutional Investor had invited me to interview during an event Sheikh Abdullah Al-Jaber Al-Ahmad Al-Sabah, the head of the investment department at Kuwait's huge Public Institution for Social Security (known as PIFSS for short). 

The event took place inside the stunning Arab Fund Building, a museum-quality treasure of regional architecture and crafts. A quick survey of the packed room made me appreciate how the Kuwaiti investment landscape continues to develop. Beyond teams from the PIFSS and its mammoth sovereign wealth cousin the Kuwait Investment Authority (KIA), attendees hailed from the Gulf Investment Corporation, where Russell Read spent a few years as CIO between his current gig at the Alaska Permanent Fund and his old one running the California Public Employees' Retirement System.  

Over the coffee break before our interview — I was on coffee number six to offset the 8-hour time difference — the conversations were all dominated by the news of Saudi arrests and possible impacts. I decided to text my three sons and joke that if I'm arrested they're to contact the State Department, to which my son in second-year university responds "the state dept?" Then I entered the massive wood-paneled conference room thinking, "God help us when the Millennials take over!"

KIA is basically an endowment whereas PIFSS is a pension, so although comparisons are totally irrelevant, I heard that KIA is known for taking investment chances whereas PIFSS is known for being overly conservative. I guess it shouldn't be too shocking that Middle Eastern sovereign wealth funds are caught up in the same peer benchmarking that influences many Western investment boards. 

I kicked off the interview by asking Sheikh Abdullah to describe the background of PIFSS and the individual circumstances that frame investment decisions. To my surprise, he described that PIFSS was established under Emir's decree as a form of wealth transfer. One of world's wealthiest men was an early Bernie Sanders: I didn't see that coming. As the Sheikh further explained, PIFSS is not just a pension plan with a huge annual (fully funded) liability — we must always remember its founding principle that those assets belong to the people. I was taken back to my days in public service, with the Connecticut Treasury, and humbled by my own memory that we were not just government employees, but also the fiduciary voice of the people who entrusted their wealth to us. Honestly, I think 99 percent of our industry doesn't understand that additional burden on the C-suite of public officials. 

After being simultaneously humbled and enlightened, I decided to move on and ask the Sheikh his view on the most overused term in our industry. No, not "fake news": I'm referring to "big data." I was curious if large Middle Eastern plans were looking to big data to strengthen risk management functions similar to what we were pursuing in the U.S. For PIFSS, he explained, technology has made markets and managers more efficient, and as a result asset management fees have declined. 

I got the sense that no matter what we were discussing, the cost-conscious PIFSS officer would have found a way to rationalize that there was a way to make it into a fee savings. I decided to press the topic further, saying that I'd read an article about a CIO replaced by artificial intelligence. Did he think he'd be replaced by a computer? Without missing a beat, he cracked a small devious smile and said, "hopefully not until we've retired."

I thanked Sheikh Abdullah for his candor and mentioned that in my experience, I've always known the most successful plans to be those with strong governance. It seemed clear from his passion and desire for transparency that he shared this belief. When I'd left the stage and headed out for coffee number seven, I wondered what others might have taken away from the interview. Just as I reached the conference room doors, a well-dressed Kuwaiti stopped me. "Thank you," he said. "That made me proud to be a Kuwaiti." 

Forget the coffee! My first thought was to head out and celebrate with a glass of champagne — only to realize that I'm still in Kuwait and that's not happening.

David Holmgren is chief investment officer of Hartford HealthCare, where he leads a team managing $3.2 billion in pension and endowment assets.

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