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It is hard to argue against the merits of youth, particularly as it slips through one’s own fingers. In the investment world, it has always seemed to me that youth should be a highly prized commodity, because it brings with it a freshness of attitude that institutional investors direly need. For change comes hard in this arena: How else can you explain so many institutional portfolios still moored to a 60/40 asset allocation? Or the abiding belief in long-only alpha? Or the time-consuming song-and-dance that accompanies any and every selection of an asset manager, no matter how marginal? Or why many institutional investors think that relative performance matters a whit? And, for that matter, why does anyone use, or more to the point pay for, anodyne funds-of-funds? These and other questions cannot be answered other than it has been ever thus.
Accepted wisdom is the great enemy of progress. It locks investors into approaches and solutions that lose their relevance all too soon—like early twentieth-century generals, institutional investors all too often find themselves fighting a new war with tactics learned in, but only suitable for, prior wars. In this decade of upheaval, so much of what we take for granted in the institutional investment arena desperately needs to be viewed through fresh eyes.
My own skepticism as to the value of accepted wisdom came early in my career: I was ushered with some solemnity into a meeting at an asset management firm to hear the wise words of a longtime (read: curmudgeonly) investment consultant. What I heard instead was an hour-long rant dismissing everything new under the sun. What I remember in particular was much invective aimed at hedge funds, anyone with an MBA, and indeed anyone looking for new investment solutions when the old ones worked so well. It remains the only time in my life when I felt I was in the presence of a speaker who lived up to the put-down that the great Thomas Reed, Speaker of the House in the early nineteenth century, accorded to a political rival, a man who, Reed observed, “never opened his mouth without subtracting from the sum of human knowledge.”
Of course, it is not that youth has the right answers. There can, after all, be no “right” answers. We are painfully learning that every asset pool has its own singular risk and return characteristics, and there are, alas, no universal solutions. And youth can be naïve, hasty, and impetuous. These are all tendencies that are dangerous in the investment world. But the best of the younger talent now running and managing portfolios seems unconstrained by the dangerous wisdoms of yesteryear, open to more clarity of thinking, more willing to be on the margin rather than in the center of the pack when circumstances demand, seeking out transparency, and wanting to understand who gets paid what and when and by whom. Alternatives are in their mainstream, not lurking in the periphery. They might not have the right answers, but they ask more of the right questions.
But I would hold to one abiding virtue that the passage of time grants to those who survive it. Cynicism is often seen as a vice, the province of journalists and scoundrels. In the investment world, cynicism is anything but. It is a rare earth metal, vital for sorting through the legions of know-alls who parade their wares in front of them. No investment solution is ever as good as it sounds. The best CIOs should combine relentless curiosity with unbounded cynicism—the incompetent, the copycats, the fraudulent, and even the arrogant cannot pass through those twin traps.
So give me youth and give me cynicism: That’s the CIO you want.
Charlie Ruffel—founder of aiCIO and Asset International’s other media brands—is a global authority on retirement, asset management, alternative investments, and securities services issues. He is now Managing Partner at Kudu Advisors, which provides M&A and strategic advisory services to institutional asset management and global asset servicing businesses.