Business people meeting at table in conference room

Content provided by Rusty Vanneman, CFA, CLS Chief Investment Officer

I’m often asked to describe the role of a Chief Investment Officer (CIO). A short answer that seems to work in many parts of the country (especially here in Nebraska) is that a CIO is like a football coach. The CIO is accountable for the investment team, how it’s managed, and how it ultimately performs. Of course, a team doesn’t just depend on one person. It takes a lot of talented people working for the same purpose to make a winning team. At CLS, I’m lucky to have one.

Another way I describe the CIO’s role is being responsible for the four Ps: people, philosophy, process, and performance. The four Ps have provided an effective checklist throughout my career, not only in managing my team but also in selecting money managers for my clients.

For many years, I worked in Boston. I was either on, or managing, high-performing teams building portfolios of mutual funds. To do my job, I interviewed Portfolio Managers across the country and who managed every asset class, conducting well over 2,000 interviews. Our task was to identify managers and funds that we could confidently use for our clients and shareholders. After doing our due diligence, did we trust the managers? Respect them? Like them? In that order actually – and we didn’t have to necessarily “like” managers if we thought they were good, but we did need to have a working relationship with them. What I’ve learned from that experience is the most important P to being a successful CIO is the first one: people.

People

How I manage the people on my team is by offering them respect, providing resources, and facilitating an open, collaborative atmosphere. For a more complete picture, here are a few questions I’m often asked about our team at CLS:

  • How does the portfolio management team make decisions?
  • Each strategy at CLS is team-managed. Each portfolio vote is majority-rule; it does not have to be unanimous.
  • How does the CLS Investment Committee (IC) get involved in investment decision-making?
  • The CLS IC is comprised of the senior investment professionals at CLS and additional senior management. It meets quarterly. The IC is fully responsible for two items: (1) the CLS Risk Budgeting white paper – our foundational document for how we manage money, and (2) the CLS Investment Themes, which every CLS portfolio must articulate in some way. These IC votes must be unanimous.
  • Does the team have good chemistry?
  • Successful investment professionals typically have a combination of humility and confidence (some may call it ego!), so we do have some spirited internal debate on the markets, portfolios, and performance. But we are a team built for performance. We play hard each day at practice, but we are unified on game day.
  • Does the team have adequate resources?
  • At CLS, we have a dozen people on the investment team. Compared to other ETF strategists (i.e., money managers who build portfolios mostly of ETFs), this is very competitive. And we have multiple people who have managed money for several decades, including veterans from Fidelity Investments in Boston, Goldman Sachs in New York, and Russell Investments in Seattle. Our team members also have experience at TD Ameritrade, Schwab, and E*TRADE. We have a variety of third-party tools ranging from FactSet to Bloomberg, which help with security selection and portfolio management. Bottom line, we’re loaded with resources (but, of course, we always want more)!
  • What are our credentials?
  • Besides our many years of investment experience, we currently have five Chartered Financial Analysts (CFAs) on board. We also have three candidates sitting for their final exams in the next few weeks. We have a Certified Investment Management Consultant (CIMA®), a Chartered Market Technician (CMT), and a portfolio manager who is a Chartered Alternative Investment Analyst (CAIA) candidate.
  • How accessible are they?
  • At CLS, we like to think we are primarily known for two things: Risk Budgeting and the access advisors have to our portfolio management team. We communicate often, whether through presentations, written commentary, videos, or podcasts. We want advisors and investors to be comfortable about how we manage their money. CLS portfolios should behave as expected. If investors are receiving our messages, there are no surprises.
  • Are they disciplined? Competitive? Passionate about the markets? Achievement-oriented?
  • Personally, these are all qualities I look for in investment professionals and new hires. This is the environment I want to foster and the environment advisors and clients should expect.

This first P: people, is critical to understand when selecting a money manager. Ultimately, it’s about developing comfort with that person – do you trust them, respect them, like them? That, in turn, should lead to comfort with a portfolio or strategy and how it behaves over time (recognizing, of course, that no strategy works all the time). An investor doesn’t want to be surprised by how a strategy or portfolio behaves, so make sure you conduct this first step of due diligence and select the right person for the job.

Stay tuned for my take on the next three P’s.

1716-CLS-5/25/2016