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Published Dec 17, 2018

Tim McCusker – Consistency and Creativity as CIO at NEPC (Capital Allocators, EP. 80)

Tim McCusker, CIO at NEPC, delves into the firm's client-centric asset management approach, the impact of megatrends like AI on investment strategies, and the fine balance between active and passive investing, all while emphasizing the need for long-term strategies and sustainable innovation.
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  • Active vs. Passive

    The debate between active and passive investing is nuanced, with highlighting the importance of both strategies. He acknowledges that while passive investing is suitable for certain asset classes like large-cap equities, active management is crucial in areas like high-yield bonds and emerging markets, where skilled managers can exploit inefficiencies 1. McCusker emphasizes the need for a thematic approach to investing, which allows for nimble adaptation to emerging trends 2.

    We think there's a place for both. We do believe that there are inefficiencies and there are skilled managers that can exploit those inefficiencies.

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    He also stresses the importance of negotiating lower fees for active management to enhance returns for clients.

       

    Long-Term Strategy

    Maintaining a long-term investment strategy requires balancing patience with agility. explains that NEPC focuses on long-term goals while remaining open to opportunities that arise from market shifts 3. He notes the importance of quick rebalancing during market downturns to capitalize on long-term expected returns, without hastily changing investment views 4.

    We're trying to think about the long term. So I think we had to think about that more and make sure that we were comfortable being more long term oriented but still looking for opportunities.

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    McCusker also observes a trend towards more dedicated investment staff within organizations, which allows for more informed decision-making.

       

    Manager Research

    Researching and selecting investment managers is a critical component of portfolio performance. describes NEPC's structured approach, which involves categorizing managers by investment structure and employing quantitative scoring to narrow down choices 5. The focus is on identifying managers with differentiated strategies that can outperform in the future.

    We're looking for something differentiated. We're looking for a reason why that manager can outperform in the future.

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    McCusker emphasizes the balance between consistency and creativity in research, allowing researchers the freedom to explore while maintaining a structured process 6.

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