CIO Transition – Roz Hewsenian and Joshua Fenton, Helmsley Trust (EP.401)

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3:11Clients of capital allocators or podcast guests may maintain positions in securities discussed on this podcast. My guests on today's show are Roz Hussanian and Joshua Finn. Josh is the Chief Investment Officer of the Leona M. and Harry B. Helmsley Charitable Trust, an$8 billion pool he began leading earlier this year upon the retirement of Roz, who served as CIO for the prior 12 years. Roz was a past guest on the show, and that conversation is replayed in the feed. Our conversation follows last week's about succession, using the live example of a successful CIO transition. We discuss Roz's plan for her retirement, steps to evaluate and train her successor, and actions upon her retirement announcement 18 months beforehand.

4:03We also cover the transition from Josh's perspective, including what happened along the way, conversations that took place, and changes when he took over as CIO. Lastly, Josh and Roz share lessons others can apply for transitions in both allocator and manager organizations. Before we get going, here's a shout out to all the investor relations and business development professionals. Your role is one of the toughest in the industry. Because unlike in many other industries, the functions of marketing, sales, and customer relations rarely drive purchase decisions in investing. It's often hard to know how to move the ball forward when allocators are busy and opaque about their process.

4:50So we decided to create a Capital Allocators University experience just for you. On December 3rd and 4th in New York City, I'll be joined by your peer and superstar Rahul Mudgal, branding expert Jen ProSec, founder of ProSec Partners, conference wizard Ron Biscardi, founder of iConnections, and investment leaders, Sarah Samuels from NEPC, Dave Moorhead from Baylor, and Shannon O 'Leary from St. Paul and Minnesota Foundation, to help you learn best practices for understanding allocators, developing relationships with investors, and building a brand through workshops and peer discussions. You can learn more and sign up to join us at capitalallocators.com slash university.

5:36Thanks so much for spreading the word about our newest Capital Allocators University course for investor relations and business development professionals. Please enjoy my conversation with Roz Hussanian and Josh Fenton. Roz, Josh, thanks so much for joining me. Pleasure to be here. I'm very excited to be here, Ted. So Roz, we're going to talk a bunch about this transition that you two went through together. And maybe the way to start is in your 13-year tenure at Helmsley, at what point in time did you start thinking about that you would no longer be the CIO? It actually started with a simple question, which was, what happens if I got hit by a bus?

6:24The concern was, who would take over if that was the case to make sure that the department ran smoothly. The way that I was staffed is that we had four directors of investments, each with their area of expertise, but all of whom were senior investment professionals. And I decided that any one of the four of them should be able to step in, in the event that something happened to me. So the way that I managed the department was to be quite open with the team about the things that I did that were not necessarily investment related, but were related to my responsibilities as the department head and the CIO, most of which had nothing to do with investments, didn't necessarily affect them.

7:12But clearly, if they needed to step in for me, it was important that they understood these things. Also, during my tenure at Helmsley, I reported to four different people in those nearly 14 years. So there was a lot of turnover over me and it was important to maintain stability below me. I always thought in terms of making sure the team was aware of everything that was going on. As time went on, I had always known my retirement date. I'd picked it actually in the beginning of my career in a group meeting of new employees at my first job out of business school at Kraft General Foods where the HR director who was addressing us said, you should decide today what your retirement date is and start planning for it now.

8:05And we were all in our 20s and I thought, okay, I'm an obedient person. I'll do as I'm told. And I picked my retirement date. About five years before I actually retired, I began thinking, I really need to make sure that there is a good transition in place because around us, CIOs were leaving their jobs without a transition and the teams below them would leave in anticipation of a new boss coming in over them. And they wanted to take matters into their own hands rather than just wait for fate to dictate what would happen to them. So of the four directors that I had, any one of the four could have succeeded me.

8:51But I thought that Joshua had the best chance of acceptance by the trustees, by the investment committee. And so I began focusing on him five years ago. And the way that I did it is that I would walk into his office and I would sit down and I would tell him things. I never told him that he was my pick. I just started telling him things that I thought that he should know. And we would have these great conversations. They weren't planned. It was very informal. And I was putting in his head things that he would need to know if he were ever to succeed me, number one. And number two, be aware of the environment outside of our department because that's the environment in which he would have to operate.

9:39What are some examples of some of those things that you tried to show Joshua and the other three deputies that they might not have seen in the normal course of their jobs? I would talk to them about things that are going on in larger Helmsley, about some of the pressure points, some of the difficulties that occurred that I was involved in, in one way or another. It wouldn't directly affect my staff, but it was part of my job. And that had to do with being a senior member of the organization and helping to run the organization. So it was those sorts of things that were internal to the Helmsley operating that I brought to their attention.

10:22What were some of your favorite examples of one of those? I had four bosses. So I would share with the team things that were going on as a result of the turnover of the bosses, the CEOs, what some of the pressure points were, what I was getting involved with, how I was part of the interview process for the successor, making sure that they understood that we were looking for somebody who could manage the entire organization. Some of that turnover was not as smooth as we would have liked to have been. And so therefore, sharing with the team the pressure points about that and how I was handling it, I felt would be instructive for them.

11:09They would listen very carefully and very patiently. And I felt it was important for them to understand not only what was happening, but sometimes I'd come back from a meeting and I didn't exactly have a smile on my face. And I felt it was important for them to understand why. So Josh, what was this like from your perspective? If you go back to that five-year period before Roz retired, when did you start to notice some of these conversations that she was bringing to the fore? The biggest indicator that this idea was bubbling in Roz's head was intentionally or unintentionally, sometimes there are misunderstandings among a staff about who is working on what project or how something should be presented, what should be prioritized.

11:58And these can create little moments on the staff that they're not unfriendly, but they're just little disagreements. And I think Roz started putting me in the position to think about how to resolve some of these, how to approach what was going on, and think of my role as helping the team work together and gel together really efficiently across lots of different roles on the team. Where before, as a director of investments, I was really very focused on portfolio implementation and finding managers. And so my purview slowly expanded to just being a little bit more aware of what managing a group of people who are all contributing to the greater whole, how that might be a different focus or something I had to be a little bit more aware of.

12:54And it's clearly the most important part of my job there. So I'm glad I got a little taste of that. It was not a deliberate thing where Roz came in and said, you need to be aware that this is going to be something you have to learn how to handle. She just sort of gave me little pieces of it at a time. And that was a really constructive way for me to become aware of what would become a really important part of this role. What were one of those first pieces that you remember having to take a different perspective on? Sometimes on a team, there are new things that crop up, new events, new projects, and there needs to be some clarity on who's going to be handling it and who's going to be assembling the final pitch to the team about how to handle it.

13:41And no team can be 100 % clear on new things about who's going to do it. And so I think some of that early stuff was just getting the group together and finding out who really wanted to do it, who thought this was an opportunity for them, trying to think about who on the team could professionally benefit from stretching to try something new. I think that was something that Roz always was very good about doing for me. Basically, this is something that you probably need to learn how to do a little bit better. It gets more practice. So why don't you try to do this? Why don't you send this particular email to this manager telling them what we're concerned about?

14:23Why don't you write it? I'll take a look at it. And so I started thinking about how to hand off those kinds of tasks, other people on the team in a way that would sort of balance their strengths and maybe develop some of their weaknesses. And I think that's another thing that's really important as a CIO is to give your team members the opportunities to grow professionally without dropping problems in their lap, being incremental about it. One of the things, Ted, that I think it's important to understand about Helmsley is that the team is set up not in buckets or lanes or categories. we give a lot of latitude to the staff to work on a lot of different projects.

15:05In doing so, it keeps them interested and motivated because they're always looking at new and different things. That's both a benefit, but it creates a bigger management challenge. And that's why everything that Joshua just said was so important. An opportunity would come up to work on a particular project. And it took management skill to make sure it didn't become a jump ball. And that's what Joshua was referring to, how to manage those sensitivities within the team. Roz, as you started thinking about dripping these different leadership and management responsibilities onto Joshua and the other senior people, the goal is continuity.

15:48And that's worked out. How did you manage four different potential successors when ultimately there's only going to be one seat? I had a very good understanding of each of the four directors and any one of the four could have succeeded me in taking over. I spent a lot of time going into their offices, sitting down and talking with them about all kinds of things, not just work-related. Sometimes there were things outside of the office. I was looking at temperament. I was looking at their interests. I was looking at how they think about problems. I was thinking about the fact that we had younger members of the team who are very, very different from each other.

16:39Who could be the most malleable in their management style to deal with each of those different people and what they needed. Those were some of the things that I was considering and doing it in a way that I was trying not to let on to anybody what I was doing. I mean, that was the part that was most important. But I think it's also important to know that when the rubber needed to meet the road, I did sit down with everybody on the team, including people who would not be my successor. And I had a heart-to-heart talk with everybody about that I was going to step down, what I wanted to propose to the trustees, and how they felt about it.

17:27And I gave them a lot of time to think about it. I informed Helmsley 18 months in advance of my leaving, and that gave plenty of time for people to get used to the idea and used to the transition. It was the communication and the open and frank discussion with everybody that I think made the difference. I was willing to listen to whatever they had to say, and they were willing to listen to me. That can only happen when you have a strong relationship with everybody on your staff. When you got within that 18-month period and you had announced your pending retirement, how did you sequence the conversations that you wanted to have both internally with the team and with the governance board?

18:13Well, what happened is that the matter, in effect, was taken out of my hands. 18 months before I retired, I was in a trustees meeting giving them an investment update. And the news was not good because the markets weren't good. Inflation had finally taken hold, interest rates had started rising, and the market started rolling over. In the middle of my presentation, one of the trustees just stopped me and looked at me and said, you can't retire. Are you going to retire? When are you going to retire? And I thought to myself, okay, I have a decision to make here on the fly. I could either play this off or I could tell him straight out that I actually had a retirement date.

18:58And so I decided to be honest with them. And I said, well, I am going to retire in December of 2023. So when I told them that I actually had a retirement date, even though it was 18 months in advance, they were shocked. And I said to them, look, I was going to tell you in January. I said, so what I want everybody to do is to just absorb the information and think about it. I also want to talk to my staff. And I said, I have a transition plan in place. And of course, they immediately wanted to know what it was. And I said, well, I haven't talked to anybody about it yet. Would you please give me a day?

19:39And so they gave me a day and I left the meeting and I go running into Josh's office and I sat down and I looked at him and I said, you and I have been playing this dance about whether you would really be interested in succeeding me if I were to step down. And I explained to him what happened in the meeting and I said, so now the rubber has to meet the road. I'm asking you straight out, Josh, do you definitely want to succeed me? Because we have to go down this path. And he looked at me And he said resoundingly, yes, I do. And so I went back to the trustees and I told them what my transition plan was and how I intended to manage it.

20:22And their immediate reaction was, well, we're appointing you to the investment committee. This is the committee I reported to for the last nearly 14 years. And that stopped me cold because I thought to myself, how would my successor feel knowing that I'd be appointed to the investment committee, it effectively would look like he would still end up reporting to me. So I was quite concerned about that. And I went back to Josh and we had quite a few conversations about it. And then I went about talking to the other directors and talking to everybody else on the team and explaining to them what was going to happen.

21:02I told them what the proposal was for my successor. I told everybody to think about it. and I told them that I wanted to have their reaction to it, positive, negative, whatever it was, because I wanted everybody to feel comfortable. So Josh and I both had to digest this idea of my being appointed to the investment committee. And I explained to the team that that was something that the trustees had asked that I do and everybody's jaw dropped because it's not common. but we all had 18 months to get used to the idea. People came back to me with questions and comments and we discussed them. If it was something that I felt I needed to discuss with Joshua, I did.

21:48Nine times out of 10, there was a very good answer for people's concerns. And Joshua had an opportunity to watch how I managed. And while he certainly would be different, I think some of the underlying tenants were the same. Open door policy, let people come and talk to you whenever they felt the need to do so. Be open and honest about what's going on. Those basic management style issues, I think he's maintained and that's what has ensured that the transition was so smooth. Then we get to the first investment committee meeting where for the first time I'm sitting at the opposite side of the table.

22:29And it was strange. It was very weird. So I asked the chairman, Linda Strumpf, for a moment of personal privilege. She granted it. And I just acknowledged the elephant in the room that this was going to be weird, but we'll all just get through it. And I was very proud of the team. They handled themselves fantastically well. I was sitting there not only just as an investment committee member, but as their cheerleader. Roz, how do you think about going directly onto the committee compared to leaving a year gap before coming back onto the committee? First of all, I wasn't given a choice. But second of all, I think ideally that would be the best way to do it because it gives the successor the opportunity to get his or her sea legs under them without necessarily the scrutiny of sitting there in front of your boss.

23:26One of the things I was concerned about is that the team would be reticent to bring forward a recommendation that they think I personally wouldn't like. And I had to come to grips with the fact that I wasn't the CIO anymore. My job wasn't to approve or disapprove. My job was to ensure that all the policies and the procedures that Helmsley had were adhered to, test conviction, and ensure that due diligence was appropriately undertaken. The team is compensated through an incentive comp hand, and they had to live or die by their own decision making. And I had to respect that. So we all had to be disciplined in our new roles, and that's what it meant.

24:15Josh, going back to that 18-month window, it's hard to imagine among you and the three peers at the time that there wasn't some type of water cooler chat at some point in time about this whole process. Yeah, was there? No, there really wasn't. I think there was a pretty comfortable adjustment to the situation. So I don't want to go further than that and try and pretend I know what they were all thinking. But I didn't get any feeling from anyone on the team that there was any kind of sour grapes or concern about the transition at all. I really didn't. And I feel like the way the team has risen to a very quick challenge in 2024 really confirms that there really wasn't a lot of potential doubt in what was happening at that moment.

25:07Once that announcement got made, at least internally, that you'd be succeeding Roz, I'm curious what kind of conversations you had with those who had been your peers that now would be part of your team. So one thing that had been really drilled into me by watching Roz be CIO for her tenure was to really reach out to your team and find out what they want to do and where they want to grow. And so it was really, really clear that that was an important step to take before Roz left the building, so to speak. So those are the conversations that I had with everyone. We are making some incremental tweaks to what people are actually doing in their roles now because of those conversations.

25:55And so I think that was something that gave everyone just comfort that I wasn't going to increase or create rigidity in the functions of the department that weren't there before. I was going to go out of my way to give everyone opportunities to do different things or follow their noses wherever those noses would go. I came from the buy side where it's very common to present an investment idea up the channel and get a hard no, and you just got to move on. But in the asset allocator space, especially when you're managing a generalist team, you can't just say no to the first pitch. You've got to ask questions about where they think this might go and then let them keep going.

26:41That's an adjustment that I've had to make just moving to the asset allocator side intellectually, where I came from a world where you got to know when you moved on because it was always another investment idea you could find somewhere. But this approach of letting people really look for truffles and give them some time to really dig in really paid off. Josh, before you joined Helmsley, a dozen years before, you spent a lot of time in the direct investment world. What did you see as similar or different in your, say, last 12 years before taking over CIO from those experiences in the direct side?

27:16What I really noticed right away when I joined Helmsley and started interviewing managers, and obviously I had been on the other side of the table pitching long-only public equity strategies, it almost became funny that I've been hearing this language given back to me that I know how it was crafted, how it was created. I was part of building these slides. I call it the dreaded funnel every investment manager has. Well, this is our universe and this is how we narrow it. And it was almost comical to be on the other side and hear this pitch that I know was just, I wouldn't say it was phony, but it was just so managed.

27:56And I felt like my experience being a director of research and an analyst a long time ago for that, you can really ask questions about the process of security selection and research within a team much more effectively and bluntly having been in that chair and then having been called in for the big pitch meeting to the pension fund and say, well, this is how we're going to talk about this. and this is how we're going to talk about this. And it's not exactly the way you're doing things because there's a lot of scratches and dents to managing money. And those are not the things that you present to clients or potential clients.

28:40So that nuance between the shiny new car and maybe some of the scratch and dents that you're not talking about, I really enjoyed jumping into those scratches and dents with the managers right off the bat and looking at the expression on their faces and saying, how do you know we do it that way? What are a couple of little examples of that? Well, a lot of managers talk about a very disciplined process and the five factors of security selection that they evaluate. And I know it's a lot squishier than that all the time. Maybe 20 % of the ideas fit into this lovely definition of what you're looking for, But you can't limit yourself to that or you won't be able to build portfolio.

29:24So there's a lot of behind the scenes scrubbing of how what you're looking at fits into what you're trying to do, making sure it makes sense from some of a larger attribution perspective. But a lot of the pieces end up not really fitting into the exact category that you're claiming is what you're doing. or at least the process is a little rougher than the linear process that you put in the slide deck. Knowing that's how it works behind the scenes on the other side of the table, how do you think about trying to find the very few managers that fill their portfolio with all the things that check the box compared to the most that you saw where that's kind of squishy in terms of what you're trying to find for Helmsley?