Piers Metcalfe is a Family Office Chief Investment Officer with over 20 years of experience across multiple asset classes, geographies and sectors. Having spent 12 years as CIO for Hawkstone, the Family Office of His Highness Sheikh Khalifa bin Hamed al Thani and many years before that within a Multi Family Office and Asset Manager, Piers is considered a thought-leader within the Family Office investment community and now helps Family Offices from an external position of consultant.
I interviewed Piers to find out what a Day in the Life of a CIO looks like, what influences impact his investment decisions and what the future holds.
How does your day begin?
I wake up really early and always have done. I then make coffee and flick through the news. I read the same four newspapers every day, three serious, one not so serious: The Financial Times, Times, Guardian and Daily Mail. I also listen to Radio Four, not because it is relevant to investing or the Family Office field but because it offers a good overview of the world’s events and of course what we do is highly interconnected. I have listened to The Today Programme for about 40 years now and I listen to it religiously wherever I am in the world .
Whatever your political bearing, consuming a variety of news and opinions wakes the brain up and offers a global and well-rounded picture. Once I have plugged into the world, I check my emails and make a list for the day ahead.
The majority of the investments I make are long-term and therefore long-planned so there are very few times that we change our decision making in an instant or in reaction to current affairs. It has to happen sometimes but we take a long term view so that “sometimes”, is not often.
What does a day in the life of an in-house CIO look like?
A lot of what I do is research-based which means I am always looking at where are we going to go next. Now it is inflation, supply side issues, the ongoing conflict in Ukraine, rising rates and commodity prices and a recession priced in but the “next” goes far beyond that. We have spent the last 18-20 months protecting ourselves as investors. We have been building equity portfolios using proprietary software and found that performance is holding up really well. It is down, but it is down in the low single digits rather than the 20-odd percent most of the markets are suffering.
We are also looking further ahead. Markets will go down quicker than the economy as we all know but they will also recover much quicker than the economy recovers. When markets recover, which they will do, they will recover sharply. You have to be invested. We are looking at investments in the Distressed Space and we have great connectivity in that space. We’re also looking at small caps that have, historically done quite well in inflationary periods. You cannot wait for the bottom market; you have to adapt to protect on a down cycle and it has been very successful so far. Exposure to real estate and commodities are looking solid at the moment.
You will receive input from all kinds of people. It is part and parcel of the role you play in the Family Office.
Your Principal or their major advisors will call you up and say, what about gold? I’ll say, what about it?
While our investment strategy and focus very rarely changes, what you do quite frequently is start researching things that you had never intended to research. You must be an enhanced google at all times and while it does not happen perhaps as much as some would think, Principals will get excited about things and it is your role to either make something happen or advise against it as much as you can and then do it anyway. We had a spate where we were going into pre-IPO tech stocks for instance, that was very opportunistic and several that my Principal and his advisors liked but they were not entirely sure why they liked them or what returns they would bring. There was more of an element of fear-of-missing-out at play while they are hot and receiving good press.
My experience may be a little different to others in the sense that my Principal was never in the same office but I had worked for Family Offices where the Principal is in the same office. Some keep a really keen eye on markets, some are interested by short term market moves . I have been very fortunate in working with people who are long term investors and do not get excited by short term volatility but were more likely to ask if these movements would bring opportunities.
How does the Family Office world differ to other investment careers?
I have worked in Asset Managers and Multi-Family Offices and while I enjoyed my time there, it never had the freedom of the Single family Office. There are always internal products to purchase and that can impact results. In a Family Office, you have the freedom and access to look where you want and the time-scales to match which I believe makes performance better. There will always be chicanes in the road but as long as you know how to navigate them, you can really build lasting investment programmes; I am passionate about this; and if it’s your bag you could thoroughly enjoy working in a Family Office.
The other difference is that, given the title perhaps, Family Offices really care about family and not just theirs but yours too. I was working for a very large, Middle Eastern Family Office when my wife had our first child. Without asking, the Principal told me that this was the most important thing that would ever happen to me and that I should take time off. During my tenure, on some days I would base my day around watching a school nativity play or a whole variety of other little events and was incredibly grateful for it. I would go to school events in the middle of that day and sometimes be the only dad there and it meant the world to me to be there. I was very appreciative for their understanding of family life, something that may be less likely in a more formal corporate setting.
Once you have shown loyalty to your Principal, they will show you loyalty back. It is a much more rewarding environment than any other, with small teams and flat structures. The caveat to this is that if you do not get along with one another, it can be untenable. You need a high EQ, to be personable and to know when to create boundaries. It is a curious position to be in. Staff turnover can be very low and I was always very lucky to work and sit with some colleagues for over 10 years and still enjoy their company.
Family Offices are essentially the investment vehicles of billionaires across the world, what pressure does this place upon you – the person responsible for managing and making their investments?
I have never worried about decision-making and believe it is down to two reasons. The first is temperament, I have never been one to become overly excited or anxious about things and so approach everything knowing both the risk and reward attached.
Secondly, Family Members and colleagues within the Family Office will always know that by the time something reaches them, it will already have been openly discussed, a plan of action implemented and been through a process of due diligence and research. You need to have a process. We had one and it was tried and tested. I always invite questions and it is very helpful to find people who challenge you. I have a skill in being able to translate finance-speak into a language easily understood which was great as often some of the most engaging conversations were had with people who weren’t investment professionals.
At one stage we did very well in the mortgage markets. It’s complex, comes with its own weird language so to help the team in our deliberations I would create a glossary of terms which helped everyone to feel comfortable. It’s about being open, honest and approachable at all times; you never want to hide behind a wall of jargon. You want to highlight successes and also importantly if an investment disappoints, don’t ignore it but try and understand and learn.
What other advice do you have for Family Office Leaders?
Be adaptable. Strange things happen. I remember being called by my Principal one day who had just seen an announcement that the Ferrari belonging to Argentinian racer Juan Manuel Fangio had just been sold for $8M. I spent time researching the classic car market; it was amazing and from an investment point of view also quite frightening. It later transpired our Principal was more curios than interested but it was a fun project.
You spend quite a lot of days doing various tasks like that. You may well be asked to do things that you are not sure about, or to work on asset classes you have no experience in working with. I remember working on a large country estate in France the only qualification I had was the ability to speak French.
One thing is though, you must be patient, because sometimes the decision maker might not be available, they might be traveling and so you have to adapt. I would travel quite a lot to see our team, it was not uncommon for me to go and have Sunday lunch with them in Switzerland for instance. Things will change, goals will change, sometimes they get big asset inflows through the sale of an operating business for instance and you need to know what to do next. I built an investment process that was not only robust but scalable too. It is really good fun and there really is no better investment job out there.
What does a post-pandemic Family Office investment landscape look like?
COVID-19 has changed the way we work entirely. We talk to people much quicker than we used to which is fantastic, especially if you are interested in a fund manager or an idea as you can get through to them almost instantaneously. The caveat however is that it was quite hard to close a deal during lockdown. Getting things over the finish line was extremely difficult.
In a post-pandemic world however, I think we are certainly seeing the best of both worlds – the ability to talk to more people in a quicker manner and of course, the ability to travel when needed to close deals.
Nothing quite frankly looks brilliant at the moment and my advice would be to keep some of your dry powder, readjust your exposure and simply do not leave the market because when it pops, you need to be there – look at slightly different stocks and plan for that day. When planning it is sometimes very hard and counter intuitive to do nothing; but sometimes when you’ve reached an inflection point in the cycle and the new direction of travel is not immediately clear doing nothing is the best course of action in the short term.
When thinking of ‘slightly different stocks’ the only thing I will say is do your due diligence. People like to say cryptocurrency is a new store of wealth like gold but it performs nothing like gold. It goes up and down again for reasons that are not particularly clear and as an investable asset I’m not sure we’re there yet. Intellectually, I am certainly not averse to it but I am currently not very enthusiastic about it, but one day there will be a more mainstream place for it. Decentralised finance is an interesting idea; it’s certainly on its way and some of the technology around it is very interesting.
We recently conducted a survey which found that 67% of Family Offices have increased their investments in Private Equity, something that you have seen first-hand. What infrastructure is needed within the Family Office to increase this type of investment?
You need resources. One of the things I think a lot of people do is make investments and let them lay. You need to be very close to the general partner (GP), go to as many meetings as you can and engage with them on a regular basis. If you have an opportunity to be on a Limited Partner Advisory Committee (LPAC) or a valuation committee, grab the chance with both hands as it offers really great discussions with your GP. It makes for a two-way conversation and gives you access that you would not usually have.
Utilising resources the most efficiently was always extremely important. We had a lot of European Private Equity but I could not make all of the meetings given the travel involved. I hired two very trusted advisors as consultants to attend a couple of meetings a quarter on my behalf, both in Europe and America. They were people I knew very well and they had been sounding boards for years and they offered not only a synopsis of the meeting but often great advice back. It was absolutely vital to have as up to date information all of our investments.
Regarding recent Private Equity performance. Current valuations have not come through yet and I think some will be disappointed with what they put to work during the pandemic. Some investors seem to believe that Private Equity gives you some sort of immunity from the current market turmoil; I’m afraid it doesn’t and any pain will sadly just be delayed. I do think on the plus side, there is still time for these things to get back on track and market dislocation always offers some great new opportunities.
When you are CIO, it’s ok to say ‘I don’t know’. But it is fundamentally your job to know and have the resources and an ecosystem to find out the answers to almost anything; it can be perhaps the most tiring aspect of the role.
You have worked both in-house as a Chief Investment Officer and externally as a consultant. When should Family Offices consider outsourcing and, what are the benefits of each?
The first question to ask is how big do you want your team to be? Do you want it to be a quasi-small investment house where you employ people to do very individual roles or do you want to outsource everything?
Most of the investments we made were done via third party managers and the closest we ever came to in-housing was using managed accounts for larger things which would be on a discretionary basis; you work very closely with them and at certain times will spend a lot of time together. We were not able to have them sit in our office for regulatory reasons but they were around the corner and managing our assets exclusively so it felt like an extension of the team. The open architecture is cost-effective, you do not need to have a massive team.
You spend a lot of time on the road looking for things and performing due diligence, neither of which is required to be in-house. I have always believed that with the best investments, you find them, they do not find you. That said, I do not believe that there is any one correct way of doing things.
You mentioned that most of the investments were made through funds, could you talk a little about the governance process involved?
When I first joined the Family Office, the governance process was fairly undeveloped. We had come off of a period, a bit like today, where everything had gone up and people got a little lackadaisical about the proper structuring of things.
One of the first things that I did was collate an annual strategy paper that highlighted successes and failures, both equally as important and both provided a great amount to learn from. It also offered more of an asset allocation model so that we knew which assets would be going into which asset classes. It was not set in stone but it certainly offered a guide and in turn, helped structure our investment committee. This consisted of all investment professionals doing their various roles, our Principal’s main advisor who had been a very senior government advisor in the Middle East, our Chief Financial Officer and myself.
It enabled us to gain a general consensus of ideas and create a strategic direction for our investments over the long-term. It enabled us to create a plan for when people needed assets, what asset classes were of interest, what everyone was working on and redemptions of when they were coming back to make it much more formalised. Prior to the crisis, leverage had been so easy to get at the time that you could buy things and think about how to pay for it later but we were much more disciplined about our asset allocation and it was a collective effort.
We would meet, discuss and sign-off together. We were set-up as a Trust so recommendations and also had trustees oversight. We worked very closely with our trustees and developed a really good working relationship with them. This relationship was one of the cornerstones in the success we enjoyed. It was rigorous and mirrored, I believe, what would have been required had we been regulated. I never dictated anything; it was always a general consensus. Research and very extensive due diligence was critical to everything we did.
Finally, what was the most memorable day for you in the role of Chief Investment Officer?
I can answer this very straight-forwardly. The 7th of June 2007. I started a job, a really big job. It was my fourth day. My Principal called and said: “We have been invited to some tennis at Queens can you go?” I said yes.
As I was getting ready to leave, I received a call from one of our custodians to say: “Have you ever heard of the Bear Sterns High-Grade Structured Credit Strategies Enhanced Leverage Fund?” I said no. He said, “You have a position on it and it’s just gone bust.”
This was my fourth day. I had just received my key fob, email address and Blackberry. I can remember it so clearly. It was almost the best thing that ever happened to us.
The Principal and his advisors asked what it was and what it meant for us and asked me to look through the entire hedge fund portfolio to come back with ideas. I went through it and delivered my observation that it was very beta-driven, very reactive to the market and really levered up and some were just investing in things they should never have touched. Remember we had just been through a period where asset raising had been easy; good performance and the right questions were not being asked; does this sound familiar?
While many managers were running intelligent, well researched books, some clearly weren’t.
One Swiss manager had a large holding in a footwear business owned by his wife. One US equity manager held a very large unexplained holding in a Turkish football club. Another US manager, a supposed specialist asset back lender focusing on domestic deals seemed to have just two big investments, Costa Rican real estate and a South American Petro-algae investment that had eye watering levels of leverage. One US manager, a tech specialist, had investments in Ukrainian farmland; and a supposed UK based European large cap manager spent a lot of time on gold mines in the former Soviet Union and commodity plays in central Africa.
These managers had one thing in common, they seemed unperturbed that their actual investments and investment mandates were almost totally at odds; their reasons for investing were often weak and it appeared that these funds had raised far more assets than they could reasonably and sensibly invest. Style drift had always been something to look out for but these funds were operating at a different level.
A lot of managers, some of them very well known, were very keen to let you know how lucky you were to be an investor; one manager’s IR team said that if an investor asked too many questions they could be forcibly redeemed. Another spent an hour talking incomprehensible jargon explaining that the fund’s very impenetrability was its strength and that not really understanding what they did was a good thing. A manager in Moscow was surprised when I asked where everybody was in their near deserted office.
I suggested cutting the leverage and cutting the beta and getting rid of the managers who had completely lost focus or we simply didn’t understand. The team agreed. I spent the backend of 2007 doing so and when we went into the 2008 crisis, we lost money like everyone did but that particular portfolio only lost 8%. We got an early warning to do something and we did it before the madness.
Safe to say, I never got the chance to watch the tennis!