CIOs Play Powerball

What would you do if you won $1.5 billion?

In the first weeks of January, a 10-digit US Powerball jackpot accrued as drawing after drawing passed without a winner. The sum up for grabs broke records and sparked fantasies—even among those of us who should know better. So just admit it: You all bought Powerball tickets. And despite the odds, you entertained the impossible: “What if I actually won?”

Ask a random person on the street and you would have heard plans such as “buy a giant mansion for my family” or “quit my job and travel the world.” In one viral TV interview, a ticket buyer in California told a startled reporter he would spend the money on “a bunch of hookers and cocaine.”

“At $1 billion, you’re not a wealthy person. You’re an institution. You can have an impact, leave a legacy, and—not to be clichéd—make a difference.”At CIO’s Manhattan offices, however, the conversation went a little differently. The question was not how we would spend the money—but how we would invest it. And more importantly, who would invest it. Suffice to say we each had a recruit from the Power 100 picked out as CIO of our future $1.5 billion family office. (And yes, to the pedants out there: The lump sum amounted to just shy of $1 billion pre-tax. But imagining the whole $1.5 billion is a lot more fun.)

We weren’t the only ones daydreaming about just how we’d allocate the jackpot prize.

Winning $1.5 billion with absolute freedom to invest it—no fiduciary responsibilities, no board to defer to—would be the “dream of all dreams,” says Mercy Health’s investment chief Molly Murphy. “I work for a very conservative organization, so I have to do a lot of hedging and a lot of low-volatility strategies,” she explains. “If I were doing it for myself… I would be able to assume a different risk profile, which would be a lot of fun.”

Murphy’s jackpot allocation would be “fairly aggressive,” she adds, with considerable weight to private equity and venture capital—and maybe some bonds to make sure the bills get paid. Even a family office has to keep the lights on.

Hewlett-Packard (HP) CIO Gretchen Tai says she would keep things pretty liquid with her imaginary winnings. “We would be able to use the dry powder to invest opportunistically,” she explains.

For Tai, the $1.5 billion would be an opportunity to deploy her favored investment strategy: Downside-protected public equities with a focus on absolute return. “I would eat my own cooking, since I think it’s a pretty good recipe,” Tai says. Another must for the HP CIO would be a seeding program for emerging managers and their contrarian ideas. Her dream is to create a think tank of sorts—and drive innovation in investing with the lottery winnings. “The goal is really to come up with a new, more asset allocation-focused investment approach,” Tai says.

Barry Ritholtz, Bloomberg commentator and CIO of his own asset management firm, is not as ambitious with his Powerball portfolio: An index-driven 60/40. “You don’t need aggressive growth,” Ritholtz points out. “At $1 billion, you’re not a wealthy person. You’re an institution,” he argues. “You can have an impact, leave a legacy, and—not to be clichéd—make a difference.” Of course, if he could make a difference while driving a Ford GT40—well, so much the better.

Mercy Health’s Murphy likewise has a brief splurge wish list—a “very large” travel budget, for one—and big philanthropic visions. “I played piano competitively for many, many years when I was younger, and it’s disappointing to me that the arts aren’t stressed as much in schools anymore,” she says. “If I were setting up some legacy for myself, it would definitely include gifts to museums and arts programs within schools.”

But museum endowments shouldn’t get their hopes up for a windfall: Murphy’s numbers didn’t come up on the $1.5 billion drawing, either. (She insists there’s been a mistake.)

The Powerball dream might be dead for most of us—winners have come forward in Tennessee, California, and Florida. Yet it’s still alive for at least one CIO: Hartford HealthCare’s David Holmgren still hadn’t actually checked his tickets at the time of press. If he did win, Holmgren says he wouldn’t invest the money himself. “A really good CIO needs to be a little hungry,” he explains. But the smooth-headed hospital CIO has one very specific qualification for the right investment guru to run his family office: “Only bald candidates will be considered.”