February 1, 2023

Inside or Outside? Where Do Successful CIO Candidates Come From?

Three looks at the different paths investment chiefs took to reach their present berths.

Reported by Larry Light

Art by Katherine Streeter

The ongoing fight among the Roy clan over who will succeed the family business’ patriarch, which resumes in March on HBO’s “Succession,” is far from the template used to fill CIO vacancies. Compared with the blackmail and betrayal the Roys employ, the CIO process boils down to 1) finding an external replacement, 2) selecting an internal candidate or 3) grooming a successor.

Who gets chosen often depends on a combination of qualifications, with investing track records and team-building abilities the most prominent. If the investment program is not doing very well, then the tendency is to go for an outside contender “who can give the investments a fresh look,” observes Michael Kennedy, a senior client partner at Korn Ferry, the consulting and search firm.

Both large pension funds and smaller entities, such as endowments and foundations, often conduct a wide-ranging search that goes beyond the institutions’ current staff. While the second-in-command at a fund, who usually fills in during the vacancy, may seem the logical choice, that is not always what transpires, Kennedy says.

A clear succession plan is often not in place. But “the investment committee does want the CIO to build a bench” if he or she “gets hit by a bus,” says David Barrett, founder of search firm David Barrett Partners.

Age is typically an impetus for doing some planning, if the CIO is near retirement. Still, there are instances like that of Laurance (Laurie) Hoagland, the longstanding investment chief for the William and Flora Hewlett Foundation (and many before that), who stepped down in 2013 at 76. (He died last year.)

The wait to name a replacement usually does not drag on for extended periods, although sometimes it does. The long-thriving Yale Investments Office (now $41 billion in assets) conducted a search to replace David Swensen, its vaunted long-time investment chief, after he died in 2021—and four months later selected an internal candidate, Matt Mendelsohn, who had joined the endowment in 2007 and headed its venture capital effort.

The giant California Public Employees’ Retirement System ($456 billion), the largest U.S. pension fund despite some sub-par investment showings, took two years to tap a new CIO, Nicole Musicco, in February 2022. The top spot at Florida’s State Board of Administration ($232 billion) remains unfilled 17 months after the retirement of Ash Williams.

Here are three cases that illustrate the different roads to the CIO’s perch:

Search: Internal Candidate Chosen

To be sure, searches invariably are for people both within and outside the organization. No statistics exist on whether the inside or outside contenders get the most job offers. The advantage for internal candidates is that choosing them avoids “the ramp-up time for a new CIO,” who needs to learn how the organization works, and “the flight risk,” as the existing staff’s anxieties about a new boss can provoke an exodus, says search expert Kennedy.

At the Alaska Permanent Fund ($74 billion), Marcus Frampton was named CIO in 2018 after working there for six years as its head of real assets and absolute return, among other roles. He since has distinguished himself with his emphasis on alternative investments, which today make up 40% of the portfolio.

His two immediate predecessors came from outside: Russell Read, previously CIO of CalPERS, stayed for two years, and before him, Jay Willoughby, co-managing partner at a New Jersey hedge fund, was there for four. Read left for a job in London, and Willoughby to work in Boston.

There was some evidence that board members preferred a CIO who would stick around longer. Frampton, originally from California, was a successful investor at the Alaska sovereign wealth fund from the get-go and had put down roots in the 50th state. The board enlisted a search firm, and Frampton won out over two external rivals.

At 42, Frampton is enjoying himself at the Alaska fund. “I came here for the job,” he says. If he left, though, he says deputy CIO Jim Parise is a “natural successor.” Parise, who started his career in Chicago, has definitely put down roots: He joined Alaska Permanent in 2001.

Search: External Candidate Chosen

Mark Baumgartner had compiled a superb record as investment head at the Institute for Advanced Study for seven years. When the Carnegie Corporation’s CIO, Kim Lew, left in late 2020 to be the top investment official at Columbia University’s endowment, the Carnegie board launched its own search, rather than use a search firm. He won the job.

“They wanted to do this speedily,” Baumgartner says. The world of foundations, especially in the New York area, is a small one, so he was well-known. IAS is in Princeton, New Jersey, and Carnegie is in Manhattan. Lew announced her departure from Carnegie in September 2020, and by December, Baumgartner was named as her successor.

“Mark Baumgartner is the only candidate to receive the unanimous approval of the selection committee, which is an outstanding show of support for his capabilities,” Anne Tatlock, chair of the Carnegie investment committee, said at the time in a statement.

Carnegie, with an endowment totaling $4.7 billion as of 2021, does not have a succession plan “that is set in stone,” says Baumgartner, 53. “But people are always keeping their eyes out for talent.”

No Search: There’s an Heir Apparent

When Britt Harris was CIO of the Teacher Retirement System of Texas, he had a succession plan that involved two subordinates: Jerry Albright (who was about his age) and Jase Auby (who was younger). When Harris suddenly jumped over to the CIO post at the University of Texas/Texas A&M Investment Management Company in 2017, the plan kicked into place.

Albright replaced him at TRS, then in 2019 announced his retirement. His deputy, Auby, assumed the CIO mantle. “Jerry was the caretaker, and we prepared Jase,” Harris says.

Harris became both CEO and CIO of UTIMCO ($66 billion), but one year after arriving, he lured Rich Hall back to Texas from Harvard University, where he was head of private equity, to assume the CIO role, with Harris staying on as CEO.

“I was a known quantity,” Hall says. He had worked for Harris at TRS, you see.

“When Rich left, I told him, ‘You’ll be back,’” Harris recalls.

The plan now is that, at some point, Harris, 64, will step aside, and Hall, 55, will succeed him as CEO. What about that CIO position? Hall says there are four “high-caliber folks” working for him who could ascend to the investment chief slot.

To Harris, tried-and-true internal staffers are the best way to go. Bringing in an outsider “should not happen,” he says. He cites several problems of going outside, including: If a transition were to occur in a bear market, a new person might not function as well as a proven performer.

“It’s like putting a new fish into your aquarium,” he says. “You might just be dropping dinner in there.”