How Do You Hire a Family Office CIO?

The chief investment officer is often the most important hire a family office makes, and one of the hardest. Get it right and the family's capital is in trusted, capable hands for decades. Get it wrong and the damage is measured in both money and family trust.

What the role does

A family office CIO leads the family's investing. Within the framework of the investment policy statement, the CIO sets the investment strategy and asset allocation, selects and monitors funds, managers and direct investments, manages risk and liquidity, and reports to the family. In essence, they turn the family's goals and risk tolerance into a living portfolio, and they are accountable for how it performs over the long run.

What to look for

Investment skill is necessary but, on its own, insufficient. The distinctive requirements of a family CIO are:

• The right objective function. A family CIO serves the family's specific goals, usually preservation and growth across generations, not beating a benchmark this quarter. Someone trained only to chase relative performance may be a poor fit.
• Temperament for discretion and trust. The CIO will know the family's most sensitive financial details and must handle that with total discretion.
• Integrity above all. This person will have enormous influence over the family's wealth. References, reputation and character matter as much as any track record.
• Cultural fit. A family office is an intimate environment; the CIO must fit the family's values and way of working.

Aligning incentives

The most consequential decision after who is how they are paid. Compensation must align the CIO with the family's long-term interests, or it will quietly work against them:

• A competitive base salary to attract genuine talent.
• A bonus or incentive tied to long-term, risk-adjusted performance, not short-term gains, so the CIO is not rewarded for taking reckless risk that pays off briefly.
• Ideally, structures that make the CIO think like an owner of the family's capital, sharing in long-run success and feeling long-run losses.

Badly designed pay is a classic own goal: reward short-term returns and you will get short-term risk-taking.

Hire, or outsource?

Not every family needs, or can justify, a full-time CIO and team. The main alternative is an OCIO, an outsourced chief investment officer who provides the function for a fee, often the right answer for families below the scale where an in-house team makes sense. Many families start with an OCIO and build in-house as they grow. For the wider staffing question, see How Do You Start a Family Office?