Catherine Murray and Elvis Gannon talk to three actuaries, Ian McKinlay, Alasdair MacDonald and Chetan Ghosh, about their career transitions to chief investment officers, and what it takes to succeed in this role
Last year, the IFoA's Finance and Investment Board launched an initiative aimed at promoting the career path of chief investment officers (CIOs), and helping actuaries move into similar roles. The board has sponsored a series of events to stimulate discussion and engagement with the initiative. Ian McKinlay, Alasdair MacDonald and Chetan Ghosh share their thoughts on what it takes to succeed as a CIO, how the actuarial skillset is suited to the role and how actuaries looking to move into this area might navigate their career path
What type of work are CIOs involved in, and what might they do on a day-to-day basis?
Ian McKinlAy (IM): It varies a lot. In a typical week I might assess a small group of fund managers for a particular mandate; attend a board meeting to discuss funding and investment; evaluate a new investment opportunity; make sure collateral arrangements for a complex longevity swap trade are working properly; and ensure a large contribution is invested appropriately.
Alasdair MacDonald (AM): The work depends upon the type of CIO. They can be internal or external, and further split between delegated, as in a fund manager, or advisory, as in a consultant. All CIOs have to span the gap between a client's needs and investment markets. Internal CIOs are closest to the client's needs, meaning a focus on liabilities, solvency and regulation, whereas delegated CIOs are closer to markets, with a focus on securities, macro-economics and trading.
Chetan Ghosh (CG): I am a strategic investment CIO, so I focus on looking at the best possible opportunities in any asset class anywhere in the world. We talk daily to some of the leading global investors. It's a large pool in which to fish, so we use our own investment philosophy and objectives as a filter to focus only on opportunities of most benefit to us.
What are your own career goals in this role?
AM: My goals are to ensure as many pension fund members as possible receive their promised benefits, at an acceptable cost for UK plc; to try and make a positive difference to an investment industry that often does a better job for itself than for the underlying savers or borrowers; and to ensure the investment and pensions industry is as impacted by new technology as every other sector, to the benefit of all. These are goals I can't achieve alone, but with collective action we can make a difference.
CG: There are very few career goals I can set myself, as the position of CIO already has maximum responsibility. In terms of objectives for defining success in the role, ultimately I want to leave the schemes with a surplus of money with which to pay the pension promises to the schemes' members. While this is a financial role, the pro bono aspect of helping our retirees is very satisfying.
IM: My current role is very fulfilling but if I do move on to different things I'd like to leave behind a legacy that holds up, and that includes my team developing their own fulfilling careers.
What does it take to succeed as a CIO, and what skill set do you need?
IM: A passion and curiosity for investments, markets and economics. In my role as in-house pensions CIO, understanding both sides of the balance sheet is very important. The liabilities are technical but the assets less so. Blending assets with different characteristics and then selling or buying at a good time requires a mathematical appreciation of risk and valuation - but also an intuitive feel. You also need the ability to persuade and take people with you and know how to get things done. Finally, you need drive and resilience - you won't get very far otherwise.
AM: A CIO is first and foremost a member of the 'C-suite', so requires the standard skills you would expect of someone at this level - communication skills, stakeholder and change management skills, vision and leadership. CIOs need to be risk aware, but not risk averse, since they are fundamentally required to generate return by taking appropriate risks. They need to retain a focus on the big picture, ensuring that the implementation details are being dealt with appropriately by others.
CG: A CIO is no different to the head of any business. The role requires vision and the ability to execute that vision. Also the ability to motivate a team, influence decision-making and good organisation.
How is the actuarial skillset suited to filling the role of a CIO?
IM: It is well suited to analytical appraisal, especially using mathematical techniques. As much investing is about the future, the core skillset needs development through study and experience. This lends itself to CIO roles which are more technical or liability oriented. Quite a few actuaries tend to be worriers, self-critical when things go wrong. The best investors will make 10 decisions and get six right. If you can cope with getting things wrong at this rate then you could be a decent CIO. My own personal style is to worry constructively, trust my instincts and ensure there's a strong challenge as part of the decision-making process.
AM: Actuaries have a good grounding in risk and quantitative techniques, and knowledge of liabilities and investments. But they are by no means the only professionals that possess these skills, and they are only some of the skills required to be a successful CIO.
CG: The analytical skills and ability to assess risks are characteristics that tend to come naturally to many actuaries. However, I would also counter this by saying that too often people, not just actuaries, try to turn investment into a mathematical problem. It is not, and a blind faith in volatilities and correlations can lead to damaging outcomes.
What challenges do actuaries pursuing this career path face?
IM: There aren't that many positions available, and they're tightly held so you need to look out and be prepared to move about.
AM: Be realistic. Investors need to have several billion under management before a full-time CIO becomes cost effective, so the number of roles is limited. There is no requirement to have an actuary for these roles, and indeed more often than not, ex-fund managers and bankers are employed.
CG: You should focus on seeking a successful career in investing and as you get more senior, decide if a CIO role is what you want. Quite often a CIO role gets merged with running the business and the focus on investing can become reduced.
As the number of CIO roles is limited, you have to be extremely focused. Networking and speaking to members of investment teams is a must, as is locating specialist recruitment consultants.
What advice would you give to actuaries looking to become a CIO?
IM: Seek work for a fund manager, investment consultancy or investment bank. I'd say the worst place to be is in an insurance company (in the insurance bit). If you've been there for years, forget it. If you've been there only a short time, ask your boss for a transfer or secondment to the asset management subsidiary. Or leave!
AM: CIOs are born, not created, so understand what you are good at. If you prefer measurement to management and risk aversion to risk taking, then consider an alternative career goal such as becoming a chief risk officer. If you think you have the right temperament, seek out opportunities to actually manage money and expose yourself to all the investment content out there.
CG: I would recommend you spend part of your career in asset management in some capacity. There is a massive psychological difference between theory and application when actual money is on the line. Also, learn as much as possible on the subject. There are volumes of investment research to read, and investment history is particularly insightful. Investors tend to repeat the same mistakes and this can lead to opportunities for more rational investors.
In your own career, what factors have been the stepping stones to success?
AM: With hindsight, there's been a lot more luck than skill involved and indeed many of the beneficial moves I've made seemed far from obvious at the time. However, you can improve your chances of being lucky through hard work, picking an area that is benefiting from a tail wind, and exploiting the continuous evolution of the investment and pensions industry.
CG: Developing one's own personal set of principles and philosophy is very important in allowing future employers to understand how you stand out from the crowd. I have also benefited from thinking carefully what I want to achieve from the roles I have taken in my career - too many people 'stumble' into jobs. I also cannot overstate the importance of networking. My personal network helped me source my current role, and the relationship network that we have developed at Centrica has been highly beneficial in finding excellent investment opportunities over the past five years.
IM: I was prepared to be opportunistic, even if that risked going down a rung in the organisational ladder. As my career developed, I tried harder to engage with people and build trust. A lot of this is about managing stakeholders and delivering on promises. Don't be scared to make mistakes, but if you do, learn from them. On being a CIO, I had an enormous curiosity about the workings of capital markets, and still do. Finally, I'm passionate about making sure my pensioners get paid. That's hopefully something others see when they give me the level of responsibility I carry.
Describe your communication skills and the importance of these skills in your role
AM: At school I was torn between becoming an architect or an actuary, but alphabetical order (and the shorter training) prevailed and I became an actuary. I think my preferred communication approach reflects my alternative career choice, since I have a preference for pictures over words, and structure over detail. Communication skills are essential in my role as I must relate complicated investment concepts at a high level to board members and other stakeholders for their endorsement.
CG: There are many stakeholders who need clear and transparent information about pension scheme investments, so an ability to explain, in terms that people can understand, what is going on within the portfolio is essential. Also, the importance of building trust cannot be emphasised enough.
IM: Always developing, and business critical I'd say. In a past life, Paul Reynolds (now public affairs director at the IFoA), taught me much, but one particular tip was the 'rule of three'. If you find yourself making a fourth point in a presentation you'll know that by then your audience has probably lost interest!
What have you done to improve your knowledge for your role in the past year?
AM: Scheduling time for reading, and meeting with other market participants and even people from entirely different fields, as this is essential. I find I only really understand what I know when I present my views and receive external feedback. Markets have an annoying habit of teaching even the best investors lessons on a daily basis. It's important to monitor the success of your decisions, learn from your mistakes and, to paraphrase Keynes, be willing to change your view when the facts change.
CG: Constant research; reading articles; meeting fund managers and speaking with investors.
IM: Aviva very generously sponsored me on an executive development programme at Oxford. It was less CIO, more MBA and part psychology, but I found it very stimulating. Perhaps a way to describe it was: 'how to achieve business goals in a way that makes people feel good about themselves'. This varies from person to person so you need to understand that too.
What do you look for when you're building a team?
AM: A team approach is essential; no one individual can hope to be sufficiently skilled (let alone expert) in all areas. Even in a single field, a diversity of experience and skills is essential, since investment requires us to make decisions using information that can either be timely or perfect, but never both. I look for people with the right range of experience and skills, but who can also add value in a team context. People tend to be either 'thinkers' or 'doers', but, without a balance of the two, no progress can be made.
CG: First and foremost, I look for the best people for the role. In my assessment of quality I will also seek strong 'softer' skills like a team player, someone who can apply common sense and just general good nature. I also ensure that roles within a team do not overlap, as this can create tension. Finally, I consider the interaction of individuals within the team to maximise the chances of team harmony.
IM: You need different characters, but getting quality is worth waiting for. On investment, really good ideas are difficult but are much easier than rapid and effective implementation. My experience is that this functionality is underplayed, so my teams are resourced and organised accordingly.
Ian McKinlay is chief investment officer at the Aviva Staff Pension Scheme. He joined Aviva in 2012 from the PPF, where he was also CIO
Alasdair Macdonald is head of investment strategy at Towers Watson. He is a member of the Global Investment Committee
Chetan Ghosh is chief investment officer for Centrica Pension Schemes