Swiss Re, Mercer UK Name New CIOs | Chief Investment Officer

Amid a bevy of CIOs shuffling among institutional investment firms, insurance giant Swiss Re and professional services firm Mercer UK have bucked the trend, tapping new CIOs from in-house.

The Swiss Re Group named Velina Peneva group CIO and member of its group executive committee, effective April 1. She will succeed Guido Fürer, who will retire after 25 years at the firm. [Source]

Peneva, who joined Swiss Re in 2017 as head of private equity, is currently co-head of client solutions and analytics in Swiss Re’s asset management division. Before Swiss Re, Peneva worked at management consulting firm Bain & Company for nearly 19 years, joining as a consultant and then being promoted to manager in 2006 and partner in 2011. She earned an MBA from Harvard Business School, following a B.A. in economics and computer science earned from Wellesley College. [LinkedIn]

For more stories like this, sign up for the CIO Alert newsletter. 

“With Velina Peneva, we’ve been able to find a capable internal candidate to lead our asset management unit forward,” Swiss Re Group CEO Christian Mumenthaler said in a statement. “Velina has a very strong track record both within and outside Swiss Re. She brings a combination of deep financial market expertise, strategic and investment skills, proven leadership capabilities and a well-established industry network.”

Meanwhile, Mercer UK announced James Lewis as its new CIO, effective January 1. Lewis was most recently the firm’s head of investment strategy, leading the design and implementation of investment strategies for fiduciary management clients.

Lewis has begun leading and overseeing Mercer’s investment solutions and investment strategy for its investment propositions in the UK market. He has also joined the firm’s UK Investment and European and Asia Pacific, Middle East and Africa CIO leadership teams. [Source]

Lewis joined Mercer Investments in London in 2010, first as a senior investment consultant; then as an investment strategist and team manager in fiduciary fiduciary management; and then as U.K. head of investment strategy in fiduciary management. [LinkedIn]

“Recent market events have emphasized the importance of robust governance and effective implementation frameworks to respond effectively to investment opportunities and market challenge,” Lewis said in a statement. “We have a hugely talented investment team dedicated to providing solutions and advice to improve investment outcomes for our clients.”

The hires are a break from a recent trend of institutional investment firms luring CIOs from outside the company. In January alone, the Pennsylvania Public School Employees’ Retirement System hired Benjamin Cotton, senior managing director at the United Auto Workers’ Retiree Medical Benefits Trust, as its new CIO; TIAA CIO Nicholas Liolis announced he is stepping down after nearly eight years to become CIO of the Guardian Life Insurance Company of America; and the Museum of Modern Art named Lou Fernandes, managing director of investments for New York University’s endowment, as its new CIO.

Last month, the State of Hawaii Employees’ Retirement System hired as its new CIO Kristin Varela, who had been deputy CIO of the Public Employees Retirement Association of New Mexico.

Related Stories:
MassMutual Names New CIO

Pennsylvania PSERS Names New CIO, Tapping UAW Investment Official

Guardian Life Hires TIAA’s Nicholas Liolis as New CIO

Tags: chief investment officers, Christian Mumenthaler, CIO, James Lewis, Mercer, Swiss Re, Velina Peneva

In 2020, a Northern Trust Asset Management study warned that institutional investors are running unseen risks in their asset allocation—essentially, their diversification is not the armor against adversity they think it is. A recent update of the study finds that things haven’t improved, and in some ways have gotten worse.

Sounds like no one was listening to the admonishment last time. “The problems are not solved, but exacerbated,” says Michael Hunstad, NTAM’s CIO for global equities, in an interview.

For more stories like this, sign up for the CIO Alert newsletter. 

By NTAM’s reckoning, institutions carry two times what it calls “uncompensated risk” versus compensated risk. In other words, too many allocators are not rewarded at all for the risks they are taking. That’s because, among other things, their investing works at cross-purposes.

Example: One fund’s manager overweights a stock, but another of its managers underweights the same stock. Thus, any benefit is cancelled out. Many plans have a multitude of outside managers, and that, the study found, “often leads to diluted performance as the result of conflicting strategies.”

Another problem is what NTAM calls a ”style tilt.” An investor might buy energy stocks, which despite their current run-up are classic value plays, and actually carry thrifty price/earnings multiples. Trouble is, the stock prices don’t always track the price of the underlying commodity, meaning oil. Along these lines, institutions may opt for stocks sporting high-dividend yields, yet not appreciate that their quality may be sub-par.

Investors also may not understand the risks of geography, Hunstad says. So they see that British stocks, namely the FTSE 100, gained almost 1% last year, while the U.S.’s S&P 500 lost a little more than 19%. Better head for Old Blighty, right? But allocators may not understand that there are key differences between the two nations’ equity markets, he noted. The U.S. is bigger on tech, and Britain is more focused on financial names, which got hurt less last year.

Allocators may get “sloppy” and settle for what the capital asset pricing model determines about a stock, Hunstad says. The storied Capital Asset Pricing Model, introduced in 1961 by Nobel laureate William Sharpe and other economists, calculates a stock’s expected rate of return by comparing it to a risk-free asset (usually Treasury bonds) and tracking its correlation to the market (aka beta).

The CAPM nowadays comes nowhere near evaluating risk properly, Hunstad says. “Now we have 250 risks, including macro, currency and sector risks,” he added. Other risk models do a far better job, he says, such as the Barra Risk Factor Analysis, which takes into account elements that include earnings growth, volatility, liquidity, leverage, P/E and momentum. NTAM has its own version of this technique.

“We have investment tools” to combat hidden portfolio risks that are far more helpful than CAPM, Hunstad says. It’s like the difference between a doctor who gives you a cursory look and one who does a batch of tests, he declares: “You want precision medicine.”