How have your first few weeks in the role been?
There have been a lot of voices to listen to through my “Coffee with the CIO” initiative. This is an engagement that I host every Wednesday. It had a good start with 30-plus people on the first call.
The point is to reach out to our clients to find out what they would like to hear from us, or if they want to ask me anything.
What have been the big challenges you have had to deal with?
There are always challenges when you come into a role, especially where there has been a CIO gap. There is a need to hit the ground running. That has been possible because people have been willing to come up with lists of what needs to be done.
The main challenge is to be inward and outward looking at the same time. And there are so many imperatives when it comes to fund launches and client engagement.
What are your priorities as CIO?
Delivering a top performance for the funds already in place, providing value for money and for partner funds to make savings that are the promise of pooling.
Have you identified areas that you would like to change?
I want to elevate London CIV into one of the most notable institutional investors in the UK. I want us to be a thought leader. To be at the forefront of product evolution and to lead the Local Government Pension Scheme (LGPS).
I have been working for the LGPS for about 15 years in various forms. As a body for open defined benefit pension schemes, it is unparalleled in the UK for its force.
What attracted you to the role?
London is one of the most exciting and dynamic financial centres in the world. Having a role based here is extremely attractive. We get foot traffic from every asset manager you can imagine and access the best investment ideas.
Then it comes to my own, personal public service calling. Something I have carried my whole life is a desire to educate and ensure that knowledge is power, and the more knowledge that is disseminated the less likely investment mistakes are going to happen.
My maturing time was [the global financial crisis in] 2008 and [Bernie] Madoff. I had just started working in hedge funds
and to see the belief in strategies where so much due diligence had been conducted just disappear overnight due to them being a sham was a real education on the headline risk that goes with alternatives.
You have an impressive CV, having worked for some leading asset managers. How different will being the CIO of an asset owner be?
As an asset owner you are looking at solutions or constructing your own, as we are, and that is clearly a difference.
But having sat on the other side, as I did at Federated Hermes, and having had my own fund of funds back in 2010, I have seen asset managers evolve into a consultative partnership model.
That is ultimately where we will be. It is not going to be transaction based, there will be a desire to add value through consulting and asset allocation with the fee-advisory bit attached to the fund provision.
I saw that with my fund management hat on, and now as an asset allocator I can see what we should expect from our partners. They can help us on this journey in thinking about net zero and with risk management. They can help us in a number of ways to take a better holistic approach.
Upon taking up the role you said you wanted to “develop a suite of investment products that reflects the evolving imperatives around net zero, cashflow generation and portfolio resilience”. What will this mean in reality?
On net zero, different clients have different degrees of how it dominates their allocation. For some it is much more focused, but we will cater for their net-zero goals through integrating ESG metrics across our entire portfolio.
We have a dedicated product for nature- based investments through our Natural Capital fund. In building out natural capital investments, the plan is to further align London CIV’s offering with the investment goals of our partner funds.
I also look at where the wants and needs are and the areas where we can make a difference. And cashflow generation is important. This is because many of our partner funds are becoming structurally negative in terms of cashflow.
They are aging, or may not have many active participants, so their cashflow profile will change, meaning that there is going to be a need to orientate the asset allocation around cash generation.
I have a lot of experience with that because I worked on a severely underfunded pension plan in Chicago, which needed to generate cash.
That may be the future of the LGPS, hopefully not on that level of funding, but certainly negative cashflow, so we need to cater for that. And resilience gets to every investor’s want and need: which is an all-weather portfolio that is diversified, protected against sterling weakness and a weak UK economy. It is all about global diversification, as well as building in multi-asset diversification.
So that resilience has been catered to with inflation hedging, like infrastructure and real estate investments.
Do you have any new investment plans for your partner funds?
We have some investments that we think should get more airtime. One of those is our UK Housing fund, which is actually an affordable housing fund so is in the impact arena.
There is a real need for housing across the UK and this is focused on the different segments of that, of making an impact on housing for vulnerable adults.
The other thing to state is that we have a Renewable Infrastructure fund, which has seen a lot of good traction. We also have a mainstream infrastructure fund. The demand for that represents the evolving need.
portfolio institutional reported last year that the Royal Borough of Kensington and Chelsea’s pension fund wanted to leave London CIV, which didn’t come to fruition. How is that relationship today?
Without commenting specifically on the relationship, which I don’t have as I haven’t met them yet, the different levels of conviction around pooling, not just in London CIV, is that we must prove our worth.
That is something we are committed to doing. We are focused on the promise of pooling, which is: cost savings, benefits of scale and efficiency.
We are greater than the sum of our parts. If we focus on that, then the results will be obvious.
How big a challenge will having 32 partner funds be?
The question is finding the thread of commonality and then finding the areas of thematic differences and seeing whether we can cater to them and make ourselves flexible.
What do you make of the government’s aim for funds to consolidate all their assets into their respective pools by March 2025 and other initiatives like nudging investment towards private assets?
They look like they may force the issue, or at least create a bit more urgency with those that have not done it yet. The pools have seasoned well, they have developed their products and have decent track records. So there is a proof statement around the savings that can be made.
There are enough on-the-shelf offerings to cater for the whole audience, so there should be no issue with the timeframe. Some initiatives, like putting 10% in privates, are blunt. The devil is in the detail. Not every private asset is a good investment because of the illiquidity and the high fees.
Do you see any problems with any of this?
If we continue to deliver on our promise, hopefully it will become self-evident to be fully part of a pool. On the investments, if it creates a rushing mentality, that could be a problem. Privates are an area that should not be rushed. They are an area you need to be educated on as they are highly complex. There needs to be an eyes-wide-open approach about the liquidity needs, the time horizons and the complex nature of these investments.
When it comes to Levelling Up, clearly that is when impact and returns can be married together. The key is not sacrificing one for the other.
What do you make of the government looking to consolidate the pooling system with a move to a smaller number of pools?
That is a longer-dated goal. That may be the natural evolution of things as pools continue to mature. We see this with any business: a natural sifting out, a natural restructuring and realigning. We are focused on delivering our mission right now.
London CIV works through an authorised contractual scheme structure. How does that work?
Basically, we are FCA-regulated and subject to the same standards as any asset manager would be, which is an important distinction as it gives a good credibility layer of official authenticity to a pool.
As far as the structure is concerned, it involves the regulatory regime, which is strict and can be onerous at times, but that is what every fund manager goes through.
How has London CIV undertaken its role within the pooling system since its inception?
There has been an evolution of our journey and that has been quite dramatic in recent years. We started well ahead of some of the other pools and with our 32 clients, which can sometimes slow the process because it can be harder to build consensus among all the shareholders.
But we have made significant strides on the journey. We are taking a seat at the table as a credible voice alongside the other pools at this point. As I say, we want to be a thought leader and lead the pack. Every pool has done something slightly different. Every pool has its own DNA.
What then is London CIV’s DNA?
With our 32 pools and the fact we started early, we were in existence before there was any mandate, so we make sense naturally. Also being in London, being in the centre of financial innovation, has enabled us to get on the front foot. London is a petri dish of some of the challenges the LGPS faces across the country: housing shortages, budget shortfalls and volatility in a change of the political wind.
In a way, with 32 clients, we are going to see it all. So that enables us to be quite nimble.
Has the geopolitical situation and high inflation had any bearing on how you undertake your work and any investments you are planning?
We are not investing in a vacuum. So even though we are long-term investors we need to be aware of the context in which we invest. But we must answer the ‘so what’ question. It is nice to talk about where the Fed is going next and what the Bank of England is going to do, but what does it mean for portfolios.
As far as we are today, we are looking more at inflation. Not quite in the rear- view mirror but decelerating and falling. Do interest rates follow? If so, what does that mean for real estate and infrastructure – things that are interest-rate dependent – as well as fixed income.
On the equity side, we have all been scratching our heads at the dominance of the US market and the tech stocks there, and the languishing of London’s stock market, which is frustrating for UK investors. Thankfully, all our clients have global exposure. We are looking at what is the endgame here. Do markets begin to get a little less concentrated and what does that mean for portfolios?
How do you see the outlook for the rest of 2024?
The US is a good barometer for the rest of the world. With the strength of its economy, the strong consumer and job picture and the fact that central banks around the world have got quite an arsenal now to cut rates next time. So they have bullets back in the chamber to use later to stimulate, should the need be there.
What has been the biggest lesson you have learned during your career?
The biggest lesson I’ve learned in my career is to always put oneself in the audience’s shoes before delivering a message. I like to ask what does the audience need to take from this communication and then I try to ensure, that it is relevant to them.
The same goes for negotiation counterparties as well as teams in general – everyone is driven by incentives, and solving for them while adding value of our own should be our overall goal.
AOIFINN DEVITT’S CV
January 2024 – present
Chief investment officer
London CIV
January 2024 – present
Chair, investment committee
Moneta
June 2021 – January 2024
Chief investment officer
Moneta
January 2019 – June 2021
Head of investment – Ireland
Federated Hermes International
April 2016 – January 2019
Chief investment officer
Policemen’s Annuity and Benefit Fund of Chicago
August 2011 – May 2012
Head of client strategies – Ignis Advisors
Ignis Asset Management
2006 – March 2016
Founder
Clontarf Capital
August 2002 – August 2006
Specialist consultant
Cambridge Consultants
July 2000 – March 2002
Associate
Goldman Sachs
October 1995 – June 1999
Associate – New York/Hong Kong
Debevoise & Plimpton
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