On a bright April afternoon, Tim McCusker sat on the roof deck of NEPC’s Boston headquarters—a far cry from two weeks before when, at midnight in upstate New York, he found out that he would be the firm’s newest CIO.
“I’d just gotten to Rochester on a Sunday. Real late. It was midnight and I’d flown in because I had early-morning meetings,” the 35-year-old said, looking over Boston Harbor. “When I arrived at my hotel, I got an email from Mike”—Manning, the firm’s managing partner—“to call him. I did. Erik [Knutzen] was leaving, he told me, and I was now CIO.”
The man on the other side of that midnight communiqué is glad that McCusker didn’t see “no” as an option. “I always knew that if Erik left, Tim was right there. Erik did a good job of helping groom Tim. We didn’t know he would leave when he did, but he put a good team in the place—and it didn’t take long to figure out who the next CIO should be.” He hasn’t been disappointed. “Tim is somebody who’s had a real positive impact since he came on board, and that hasn’t changed with his new role,” he said. “He has a unique skill set. He can go incredibly deep on the investment side. He can explain difficult concepts easily. And he’s a natural leader.”
Investment consulting has fallen from grace since the financial crisis, and yet, almost alone in the US, NEPC has avoided the decline. Speak to outsiders and you consistently hear the same thing: In an industry plagued by followers, NEPC seems willing to be the first through the door. Take, for example, risk parity. Opinion on the strategy is far from unanimous—it populates many an institutional portfolio, yet is also “a weak idea perpetuated by an intellectual bully,” according to at least one prominent CIO—but that has not deterred NEPC. “I’ve been one of our biggest risk parity proponents for some time now,” McCusker said, echoing Knutzen. “I think it’s just a better starting point for asset allocation. The issues we saw in the second quarter of 2013 don’t change my mind on it, frankly.”
Manning—a font of institutional knowledge, who joined the firm 17 years ago—credits earlier events for setting the tone for the firm’s embrace of risk parity. “A lot of it goes back to coming out of the tech bubble,” he said. “2001 and 2002: It was at that point that we started being more proactive in our advice. The detractors of consultants claimed—often rightly—that it was just a data-providing business. I joke that most of us can be right almost 100% of the time when looking through the rearview mirror, but unfortunately that is not very value-additive. We like to think we now have a willingness to give an opinion, to be proactive—and that’s shown itself with risk parity, with liability-driven investing, with alternatives.”
Of course, being first through the door often means taking the first bullet. While the firm’s reach extends well beyond risk parity, it has become nearly synonymous with the strategy’s rise. If risk-balanced strategies ever face serious issues, many reputations will be sullied, NEPC’s included.
But at the moment, Manning’s primary concern is maintaining NEPC’s momentum in an environment that may not support it. “There doesn’t seem to be that compelling investment opportunity, that next great thing,” he admitted. “The bigger risk, in my view, is that we actually get this new normal with muted returns. How does that change the dynamics?”
McCusker, musing on the roof deck just weeks after that nocturnal email, feels perhaps even more pressure. “My biggest concern in the new role is that we don’t find the next great idea, or just miss a trend entirely.” And does he have any sense of what that next idea might be?
He squinted in the early-spring sun. “I don’t… right now.”
—Kip McDaniel