Advice for a Future Senior Allocator
Ask A CIO #54
It took me a while to find my footing as an institutional investor.
In my early analyst days, I remember feeling awestruck by the portfolio managers in our investment portfolio. For some folks, the environment might be enough to advance their investment skills. The consistent exposure to great managers enough to make them adept at assessing managers. But not for me.
I was absorbing an enormous amount of wisdom and investment insights from the senior members of our team, but independently connecting the dots at the time was still hard. And to be fair, I was a good analyst, I could execute just about any due diligence process handed to me. I just couldn’t wrap my head around how our team chose any one manager over all the other managers that looked borderline indistinguishable.
It didn’t help that my younger self found senior endowment & foundation investors broadly to be intimidating. These experienced investors exhibited such impressive investment judgment and depth of understanding. For a stretch, I wasn’t sure if I would ever get there.
Of course, spoiler alert, I did eventually figure it out. Over time, I managed to develop my own investment opinions, insights, and instincts. I woke up one day, and I too had the ability to parse between managers, to distinguish between several seemingly similar firms.
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This week’s question really struck a nerve for me. One of the things that brings me tremendous professional and personal joy is having the opportunity to sit with younger endowment and foundation investment professionals. I love hearing about how they found their way to their organizations, what they’re learning, how they’re navigating their way forward. I love chatting with them about their favorite parts of the job. And I’m always delighted when they have a question that I might be able to help answer.
I recently had the chance to join a group of these young investment professionals as a guest speaker and was posed the following question.
How do I make the jump from Analyst/Associate to Director and beyond? What do I need to do to take those next steps in my career?
For all the reasons I described above, this question really resonated with me. It also made me reflect on the circumstances of an endowment and foundation career – this is a profession that doesn’t clearly lay out a rubric for advancement. There are no agreed upon qualifications from institution to institution. We’re all taught that we should learn to be great investors, but what does that even mean?
I suppose this is as good a place as any to put some standards out into the world.
Let’s start with Analyst and Associate responsibilities and expectations. As an analyst or associate, you’re likely focusing on due diligence from an implementation standpoint. You’re assigned a manager to work on, and then you set off to analyze all the data you can get your hands on. You’re participating in manager meetings alongside the senior members of your team, and occasionally running meetings on your own to gather additional information.
In most investment offices (or at least I hope it’s most) there’s a lot of scaffolding around you as an analyst or associate. When it comes to manager research, you’re trained in how to underwrite individual managers from beginning to end. During that underwriting process, you’re typically guided by senior team members toward appropriate market comparisons, so you start to learn the investment landscape for various strategies. By the end of any one process, you’ll have learned all about the chosen manager’s strategy, how the manager executes that strategy, and why your team has conviction in that particular manager.
What you typically are not asked to do, as an analyst or associate, is to run the full manager search. That ask comes at the next level, as an Investment Officer or Director. And moving from underwriting a manager to selecting the manager to underwrite requires a step function change in investment capabilities.
To answer your first question directly, to make the jump from Analyst/Associate to Director, you need to be prepared to run the full manager search. Part of the task is tactical – identify all the managers that should be included in the search. As part of this sourcing and mapping exercise, you’ll pull internal and external databases, but you should also have a ready network to tap into of LPs and GPs, placement agents, and cap intro folks. This is the easier step.
The harder step, by far, is creating your own mental model for how you’ll assess each of these managers. Take this as just one person’s approach, but I would go so far as to encourage adopting a strict discipline of ranking the managers as you go. As you meet with and assess the managers you’ve mapped out, how does each compare to all the other prior managers you’ve met? Be intellectually honest about your rankings.
This exercise is likely to feel odd at first, and you might notice that many managers will cluster in the middle of the pack of your mental model. Force ranking the managers you’re evaluating in your manager search requires you to make distinctions. Sometimes the challenge is that managers appear too similar. Other times, you may be tempted to say, these managers are too different, it’s not really an apples-to-apples comparison. That may be, but you should still be able to define for yourself which is more suitable for your specific institution’s portfolio.
If you force yourself to find distinctions among managers, you can test and validate over time whether the differences you key in on matter for eventual outcomes. The ability to build your mental model is, in some ways, just a product of seeing enough stuff – enough managers, enough strategies, enough successful and unsuccessful investments.
That’s the great thing about being long-term investors in this business. By the time you finish out your Analyst/Associate years, you should start to notice whether the qualities that you thought were important actually were important. Whether the risks that you thought you saw, really were risks. Whether there were risks that you totally missed, that you didn’t appreciate. You’ll have some sense of when complexity is worth unpacking and when it’s just uncompensated risk.
Of course, as you go through your manager search, you may or may not find that elusive exceptional manager.1 If you do, you will have honed your understanding and appreciation for what makes them an exceptional manager.
I’ve gone on too long already, but let’s briefly take it a step further. If the shift from Analyst/Associate to Investment Officer/Director is marked by the ability to run a manager search, then the shift to Managing Director/Asset Class Head is marked by the ability to identify the necessary manager search.2
It’s yet another step function upward in capabilities. A senior investment professional needs to be able to look across the portfolio (or their coverage of the portfolio) and identify the gaps. Where does the portfolio need additional or different investments? And equally, if not more importantly, what no longer makes sense? In my experience, proactively identifying when an existing manager is no longer a fit is oftentimes far harder than sourcing new managers.
And finally, since you asked explicitly what steps you need to take to advance your career, let’s be upfront about what it will likely take logistically to keep moving up. If you were to map out the career paths of the many senior members of the endowment and foundation community, you’ll find that they almost all changed investment offices throughout their careers. In fact, some have switched many times.3
Investment offices tend to be small. There isn’t always space to continue progressing at your current office. Build your network, and build a good reputation, because you may need to lean on both to take that next step.
I would also argue that there are ancillary benefits to experiencing several investment offices over your career. These can be opportunities to compare how various investment offices operate, allowing you to pick up different practices along the way. And of course, there’s the natural benefit of an expanded network of colleagues.
As always, thanks for reading! And if you have other questions, please don’t hesitate to reach out: askacio@ivyinvest.co.
See you in two weeks,
Wendy
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It’s entirely possible you could reach a conclusion that none of the managers you review are appropriate for the portfolio, and that it’s not sound to put the strategy into the portfolio at this time. That is a perfectly reasonable, and actually commonly experienced, conclusion!
Let’s agree that we’re speaking only about investment capabilities here. Naturally, as folks progress upward, there are increased expectations for managerial skills. This culminates eventually in the CIO role, which inevitably comes with many “stakeholder management” responsibilities.
There’s a reason we call it E&F musical chairs.