Investor Spotlight: New London CIV CIO Champions Client-centred Thinking

Aoifinn Devitt
Chief Investment Officer, London CIV

Last month brought the announcement of a new Chief Investment Officer for London CIV – one of the eight asset pooling companies for the UK’s Local Government Pension Scheme, and the one with by far the largest number of Client Funds (thirty two). Aoifinn Devitt recently sat down with Investor Spotlight to share insight on her investment philosophy and the CIO role.

She arrives at CIV at an interesting juncture. The LGPS pooling initiative is now several years old and the process of ‘transitioning’ is ongoing. A 2023 UK government consultation indicated that 39% of assets had been moved from the underlying funds to the Pools (as of the previous year). Today, the government continues to press for further ‘scale’ benefits, including a proposed 10% target for Private Equity. Mandatory transfers of assets to Pools, lighter-touch oversight by Client Funds and indeed mergers between the Pools themselves are all being mooted. Interestingly, the direction of travel presents a potentially thought-provoking counterpoint to the Dutch example, explored in last month’s Investor Spotlight interview: in that case, the regulator is pressing pension fund trustees to regain fuller ownership of decisions (from fiduciary managers).

For Devitt, client-centricity is key to success. “Being in the CIO role is about being a vessel for our partner funds’ investment needs and goals,” she says, drawing on her own experience—most recently as CIO of the USD 32 billion wealth manager Moneta Group. “There will always be stakeholders involved; they need to be with us on the journey and they need to build a comfort level in order to do that.”

Q: What do you see as your priorities in the ‘first hundred days’ as CIO?

One: we need to ensure that we’re providing the product range that meets our partner funds’ needs today. The asset allocation that stakeholders want has moved on since five years ago. There are new and emerging products in areas such as Natural Capital and Private Credit. We’ve heard the clients, the mandate is loud and clear, we know what we need to do: now we need to execute.

Two, we need to ensure the most efficient value for money: we’ve got to continue to realise the benefits of pooling, in terms of savings and efficiency.

Three: it’s important that every partner fund and their stakeholders are heard. They should be able to sign off on an investment plan that they’re confident in, that is in accordance with their fiduciary duty, and that they feel is resilient for the uncertain times we’re living in.

Q: Tell us a little about your career, and about how you feel it has prepared you for the new role.

My journey towards investing started on the advisory side, first as a lawyer, then in investment banking and consulting, and ultimately towards investment decision-making—pulling the trigger. I’ve moved from the institutional side towards the wealth side and now back to institutional. I’ve started on the alternatives side and moved towards covering traditional asset classes as well. I’ve been on committees as well as in investment teams.

One thing I’ve learned is that being a CIO is about being a ‘partner’ rather than just someone who is investing on another’s behalf. There will always be stakeholders involved; they need to be brought along on the journey and they need to build a comfort level in order to do that. Being in the CIO role is about being a vessel for partner funds’ investment needs and goals. This is essentially what I was doing at Moneta in the private wealth arena; now I’m back in the institutional world, but it’s about the client partnership.

I don’t think you should ever tell a partner fund ‘no’ when they’re looking for a way to adapt the portfolio to meet their needs.

I learned most of my investment skills on the job: my MBA was more theoretical and abstract, not the cut and thrust of real investing. I’ve come up that learning curve so I know how daunting it can be, especially when it comes to investment complexity. And, of course, the more complex a client perceives the subject to be, the less likely they are to ask questions – even though, if they don’t ask questions, they won’t be able to get comfortable, so you can lose them. I know how important it is to write in plain English and focus on communicating frequently and proactively.

Q: What’s your key tip for bringing clients ‘on the journey’ with you?

I’ve been making presentations to clients for a long time. You’ve really got to understand their ‘WIIFM’ – what’s in it for me? Data dumps are so meaningless. It’s also really important to understand the clients’ specific needs: one might need more liquidity, one may not want to use hedge funds, one may have a big single-stock position. You can go ‘off route’; I don’t think these things detract from the advantage of scale. I don’t think you should ever tell a client ‘no’ when they’re looking for a way to adapt the portfolio to meet their needs. Just think about cancer treatment: doctors can now tailor treatment to the DNA of the individual person. You should be facilitating and tailoring.

Q: From your experience in the wealth sector, how do you think about the question of ‘scale’ versus ‘customisation’?

Private wealth is changing. Under threat from robo-advisors and commoditised advice, the ‘value proposition’ for wealth managers is—increasingly—a very tailored financial planning function. This is the antidote to the robo-advisor: individual planning, care, attention. It has to be very highly customised.

Another important thing to note is that private wealth is not the ‘poor relation’ of the investment world anymore. When I entered private wealth coming from the institutional world, I was concerned that we’d be getting less sophisticated marketing material, inferior products, higher fees – getting the scraps. That didn’t happen. Today, the private wealth sector is seen as being very fast-growing and dynamic: managers want to work with wealth clients; and alternatives providers are making a concerted effort to penetrate this segment.

Q: You mention portfolio resilience and the uncertain times we’re living in. How do you view the challenges of the current investment climate?

To be honest, I generally tend to be sceptical of those that say we’re on the cusp of major macroeconomic difficulties. I’ve seen multiple market cycles and behaviour doesn’t really change much: even in COVID, when there was a lot of talk about a huge change, economies have carried on. There’s a rise in inter-state conflicts, there’s impact on supply chains, but I don’t think we’re in a sea change – a massive shift in sentiment. I’m not a believer in de-globalisation: there are shifts in alliances and trade but they’re not seismic. Markets have a tendency to shrug off news-flow (elections and so on).

You always have to understand the macroeconomic setting, but the portfolio should be ‘all-weather’ – it should survive in inflationary or deflationary conditions, in periods of economic expansion or contraction.

I prefer preparations to predictions: no one can make predictions, but you can prepare.

Diversification is key here. One of my favourite strategists, Dr. David Kelly of J P Morgan Asset Management puts it very well: he notes that it’s important to recognise that we diversify because of the unknown. You don’t diversify because you know what will happen: you diversify precisely because you don’t know what will happen. I prefer preparations to predictions: no one can make predictions, but you can prepare. Nobody really has a 60:40 any more.

I think the march of institutional investors towards alternative investments is unstoppable. The experience of 2022 just reinforced this, when equities and bonds became correlated. There’s better understanding now about the time horizon of alternative asset classes and the importance of not using them as a source of liquidity.

Honestly, 2022 was a rude awakening for every investor – institutional and private wealth. We’re used to seeing double-digit downturns in equities, but to see that savage turn in the bond market really left a scar. Even when yields went up in early 2023, investors didn’t rush in: inflation was high; FOMO was still alive and well; 5% in bonds wasn’t tempting enough.

Q: What’s your perspective on the trends towards ESG, impact investing and ‘Net Zero’?

Initially, partner funds and stakeholders may not have a focused approach; they may have different objectives and they may not all necessarily be achievable. It’s important to agree on the priorities to focus on and start there (Pensions for Purpose does this by getting groups to focus on three SDGs, for instance). Then, you can identify efficacious ways to achieve that purpose.

There’s some mis-labelling and over-promising in this sector, and not much track record. There’s a need for heightened scrutiny. Not every fund that states that it is Net Zero will achieve it.

It’s important to get on the offence rather than the defence. Document what’s been done, communicate about positive attributes, get ahead on the PR side, make the case meaningfully. For example, there may be high carbon exposure at a certain point in time, but there could be a lot of positive impact being created. The outcomes of engagement need to be proven.

Q: Closing thoughts. What are you most passionate about?

Communication is my passion: education, outreach, amplification, making the complex clear. I’m really interested in how different people access the world of investment. How do you engage with people? By speaking to them, and speaking their language. That’s one reason I’ve really enjoyed interviewing people on the FiftyFaces podcast. I want to showcase people doing investment from across society.