What Keeps CIOs Awake at Night?
There was a time when a Chief Investment Officer's sleepless nights could largely be attributed to market movements. A surprise rate rise, an economic shock or an unexpected geopolitical event could wreak havoc with even the most carefully constructed portfolios.
That hasn't changed. If anything, the pace of change has accelerated.
What's different today is that the questions keeping investment leaders awake at night have become infinitely more complex.
It's no longer simply a question of whether to allocate 5% or 10% to private markets, or whether inflation has peaked. Today's CIOs are wrestling with something much bigger.
Have we constructed portfolios for the world we have, or the world we used to have?
It's a deceptively simple question.
Institutional investors are simultaneously confronting concentration risk, geopolitical fragmentation, changing demographics, technological disruption, climate and nature-related risks, questions around productivity and growth, increasing demands for resilience and an ever-expanding understanding of what good stewardship might look like.
The uncomfortable truth is that nobody has all the answers.
Perhaps that, more than anything else, is what keeps CIOs awake at night.
What are we all underpricing?
One of the most interesting conversations emerging amongst institutional investors isn't necessarily about where capital should be allocated next, but what we may collectively be underestimating.
Five years ago, relatively few people were discussing:
energy security;
AI's impact on infrastructure and electricity demand;
sovereign competitiveness;
systemic risks;
biodiversity loss;
supply chain resilience;
the implications of increasingly concentrated markets.
Today, they are becoming mainstream investment considerations.
What might we not be talking about today that will seem obvious in another five years' time?
It's an impossible question to answer with certainty, but perhaps it is precisely the sort of question institutional investors should be spending more time asking.
The reality is that CIOs are increasingly being asked to make decisions in environments characterised not by certainty, but by ambiguity. Investment committees naturally seek conviction and clarity. Markets, unfortunately, are offering rather less of both.
Are portfolios becoming more resilient or simply more complicated?
Institutional portfolios have undoubtedly become more sophisticated over recent decades.
The traditional 60/40 model has evolved to include:
private markets;
infrastructure;
private credit;
hedge funds;
real assets;
sustainable investment strategies;
sophisticated liability-driven approaches.
Yet complexity doesn't automatically equate to resilience.
Indeed, one of the more provocative questions worth asking might be whether some portfolios have become increasingly complex whilst simultaneously becoming increasingly exposed to many of the same underlying risks.
Diversification remains fundamental to good investing, but are we sufficiently challenging our own assumptions about what diversification now looks like?
There are no easy answers.
However, there is perhaps growing recognition that portfolios should increasingly be viewed as integrated systems rather than collections of individual risks and opportunities.
That shift in thinking feels significant.
Leadership in an age of fragmentation
Investment leadership has always involved making difficult decisions. Today's environment simply demands that those decisions are made against an increasingly fragmented backdrop.
Markets are fragmented.
Politics is fragmented.
Societies are fragmented.
Increasingly, so too are the issues investment leaders are expected to consider.
The role of a CIO has evolved far beyond delivering investment returns alone. Today's investment leaders are expected to understand:
systemic risks;
regulation;
governance;
technological change;
sustainability;
geopolitical developments;
organisational leadership;
stakeholder expectations.
Perhaps more importantly, they are expected to make sense of how these issues interact with one another.
It is no longer sufficient to ask:
What should we invest in?
Increasingly, the questions becoming more difficult – and arguably more important – are:
What should good investing look like?
What responsibilities do we have as long-term stewards of capital?
How resilient are our portfolios?
Which assumptions deserve to be challenged?
These are not questions that can be answered by spreadsheets alone.
The value of being in the room
One of the unintended consequences of increasingly busy professional lives is that collaboration can begin to feel like a luxury rather than a necessity.
Paradoxically, it may have become more important than ever.
Institutional investors are extraordinarily good at analysing data. They are less frequently afforded the opportunity to step away from their day-to-day responsibilities and spend time discussing the bigger questions shaping the future of investing.
Some of the most valuable conversations don't begin with:
"What's your view on private credit?"
They begin with:
"What are you most worried about?"
or:
"What are we all missing?"
The answers are often fascinating.
A sovereign wealth fund may be thinking about resilience in an entirely different way to an insurer. A private markets investor may have a different perspective on productivity and long-term growth than a pension fund CIO. Policymakers may be wrestling with questions around competitiveness and infrastructure investment that have profound implications for institutional portfolios.
Increasingly, the answers lie not within individual organisations, but at the intersection between them.
That is why bringing together diverse perspectives matters.
Courage may become the defining characteristic of investment leadership
Perhaps the most overlooked characteristic of great investment leadership is courage.
It takes courage to challenge conventional thinking.
It takes courage to admit uncertainty.
It takes courage to say:
"I don't know."
There can sometimes be an expectation that leaders should possess all the answers. The reality is rather different. Great leaders are often distinguished not by the certainty of their convictions, but by the quality of the questions they ask.
What assumptions about investing deserve to be challenged?
What opportunities are we missing?
What will we look back on in ten years' time and wish we had acted upon sooner?
These are leadership questions every bit as much as they are investment questions.
Sleeping slightly better at night
This article began by asking what keeps CIOs awake at night.
Perhaps the answer is:
almost everything.
Yet there is also something rather reassuring about recognising that institutional investors everywhere are grappling with remarkably similar challenges.
Nobody has complete visibility of what the next decade will bring. Nobody can predict every geopolitical event or market dislocation. There will always be uncertainty.
What can be controlled, however, is the quality of the conversations we have, the diversity of perspectives we seek and our willingness to continually challenge our own assumptions.
The future of institutional investing will not be shaped by individual organisations operating in isolation. It will increasingly be shaped by collaboration between asset owners, asset managers, policymakers, academics and market leaders willing to ask difficult questions and share their perspectives openly.
Ultimately, what keeps CIOs awake at night may not simply be the risks we can identify today, but the ones we have yet to recognise.
That is precisely why creating opportunities for thoughtful, candid and collaborative conversations matters.
After all, the most important question may not be:
What should we invest in next?
but rather:
What should good investing look like over the coming decade?
And that is a conversation worth losing a little sleep over.
Join the conversation at RAOEurope26, Oct 29th, London
