Questions to Ask Chief Investment Officer
Questions for a trustee, board member or committee member meeting the CIO who manages a pension, endowment or family office portfolio, covering mandate, process, costs, risk and who decides what.
The questions
Open any question for the note
What is the portfolio for, and by when?
Why ask it
Start with the liability rather than the assets. A pension paying benefits in eight years and an endowment funding a programme in perpetuity should not hold similar portfolios. A CIO who answers with a return target rather than an obligation has skipped the first step.
What return do you need, and what happens if you miss it?
Why ask it
The consequence is the useful half. Higher contributions, a smaller programme, a deficit on the sponsor's balance sheet. If nobody can say what missing means in practice, the target is a number rather than a constraint.
How much can this fall in a bad year, and what would that mean for us?
Why ask it
You want a figure and a consequence, not a discussion of volatility. Note whether the estimate is derived from the last two decades only, which excludes several kinds of decline, and whether they distinguish a paper fall from a forced sale.
What are we paying in total, including fees inside the funds?
Why ask it
Ask for the all-in figure: management fees, performance fees, custody, transaction costs, and fees charged within underlying funds. Reluctance to produce a single number, or an answer covering only the headline fee, is worth pressing on, since costs are the one certain drag.
Which decisions can you make alone, and which need the committee?
Why ask it
This is the governance question and it determines everything about speed and accountability. Discretion that is broad but rarely exercised, or narrow but routinely worked around, are both problems, and the answer is often different from what the policy states.
Walk me through your worst investment and what you did about it.
Why ask it
Ask for the specific case. What you are assessing is whether they can describe the reasoning that failed, not just the outcome, and how long it took to act. "We were early" without a change in process is a description rather than a lesson.
How much of your return has come from asset allocation rather than manager selection?
Why ask it
This tests whether performance is being attributed honestly. Answers that credit stock or manager picking for most of the result deserve scrutiny, since allocation usually dominates. Look for an attribution analysis rather than a recollection.
What are you benchmarked against, and who chose it?
Why ask it
Benchmarks selected by the person measured against them tend to flatter. Ask what was rejected and why, and whether the comparison includes fees. A composite that has changed more than once in five years is worth asking about.
What would make you sell a manager you like?
Why ask it
Written triggers, whether on performance, staff departures or asset growth, distinguish a process from a relationship. If the criteria are all qualitative, redemption decisions will be made late, because the human cost of firing someone you know is high.
How much of the portfolio could you turn into cash in a month?
Why ask it
Liquidity is where institutional portfolios actually break, particularly where private holdings have grown as a share while public markets have fallen. Ask for the figure under stress rather than under normal conditions, and about outstanding commitments not yet drawn.
What are you committed to paying into private funds over the next three years?
Why ask it
Undrawn commitments are obligations that arrive on someone else's schedule, often at the worst moment. A CIO who cannot state the number, and the plan for funding it without selling at a loss, has a gap in the plan.
Where in the portfolio are you taking the same risk twice without meaning to?
Why ask it
Correlated exposure hidden across different labels is the common failure: several managers holding the same names, or credit risk appearing in three places. Willingness to name a specific overlap is a better sign than a statement that everything is diversified.
What are you doing that you would struggle to explain to a beneficiary?
Why ask it
A test of both complexity and comfort. Structures that resist plain description tend to be the ones that cause trouble in public later, and it is easier to hear about them now than in a press enquiry.
Which of your current positions would you not buy today?
Why ask it
Holdings kept because selling would crystallise a loss or admit an error accumulate quietly. A CIO who can name two or three and explain why they remain is being straight with you. A claim that they would buy all of it again is implausible.
How do you use leverage anywhere in this portfolio, including inside funds?
Why ask it
Ask explicitly, since borrowing at the fund level is easy to describe as an asset allocation. Leverage changes the shape of a bad year more than any other single factor, and it is often the thing least visible in a summary report.
What does our stated policy on responsible investment actually rule out?
Why ask it
Ask for the exclusions and the mechanism, not the commitment. An engagement-based policy with no divestment condition and no voting record to show is a statement of intent. Whether it is enough is your decision, but you should know which one you have.
Who else works on this, and what happens if you leave?
Why ask it
Key person risk is real in small investment teams, where relationships with managers may not transfer. Ask who could run the portfolio next month and whether anyone else attends manager meetings.
What conflicts should we know about?
Why ask it
Ask directly rather than relying on a register: co-investments, former colleagues at managers you hold, fees shared across entities, board seats. The question is routine, and a defensive reaction to it is more informative than the disclosures.
What does your reporting not tell us?
Why ask it
Every report chooses a lag, a valuation basis and a set of comparisons. Private assets valued a quarter or two behind will make a falling market look calmer than it is. A CIO who explains their own report's limitations is describing something they understand.
What keeps you awake about this portfolio?
Why ask it
A close that usually gets the honest answer, and it is often not the risk in the papers. Compare it to the risk register: a gap between what worries them and what the committee monitors is the most useful thing you can leave with.
Doing the diligence properly
Practical guidance for the conversation itself
How to run the conversation
Ask for documents before the meeting
The investment policy statement, the last four quarterly reports, the fee schedule and the risk register. Reading them first turns an hour of orientation into an hour of questions only they can answer.
Ask about the process, then test it on a case
A described process always sounds disciplined. Pick one real holding and walk through how it was approved, monitored and reviewed. The gap between the two is what you are looking for.
Insist on all-in costs in writing
Verbal fee summaries omit layers, usually the ones inside underlying funds. Ask for a total expense figure in pounds or dollars as well as basis points, since the cash number tends to focus a committee.
Bring someone independent if you can
An adviser with no stake in the current arrangement will hear things a committee of non-specialists will not. Where the sums are large this is cheap relative to the decisions involved.
Reading the answers
Encouraging signs
- Starts from the liability and the time horizon rather than from products
- Volunteers a mistake with the reasoning attached, not just the outcome
- Has all-in costs and undrawn commitments to hand as figures
- Can name a specific overlap or concentration in the current portfolio
Worth pressing on
- Past performance offered in place of process
- Benchmarks that have been changed or that exclude fees
- Liquidity described only under normal conditions
- Complexity presented as sophistication when a plain explanation is requested
Mistakes committees make
Deferring because the subject is technical
If an answer cannot be explained in terms you follow, the problem is the explanation. A committee that stops asking becomes a rubber stamp, and that is usually visible in hindsight.
Reviewing performance without reviewing risk
Returns are easy to discuss and arrive on a schedule. The exposures that produced them, and what would happen in a bad year, take deliberate effort to put on the agenda.
Judging on the last three years
Short windows reward whatever has recently worked. Ask how the approach behaved across a longer period, including a serious market fall, and whether the current team was in place for it.
Treating strategy meetings as the place for individual holdings
Time spent debating single positions crowds out allocation, costs and governance, which matter more to the outcome. Keep them on separate agendas.