CFA Institute

Institutional investors are operating in an environment where traditional approaches are under strain and long-held assumptions no longer hold. Yet within these challenges lies an opportunity to rethink strategy, sharpen focus, and build more resilient, forward-looking portfolios. This curated selection of Enterprising Investor posts reflects both sides of that equation. Some contributions examine the cracks — underperformance, governance gaps, and structural inefficiencies. Others offer practical ideas for adaptation — integrating investment teams more strategically, adopting HR practices that help retain top talent, and aligning portfolios with long-term sustainability goals. Performance Pressure & Strategy Reassessment Many institutional portfolios are facing a performance reckoning. Big Funds, Small Gains: Rethinking the Endowment Playbook shines a spotlight on endowment underperformance, citing return smoothing, structural underperformance, and allocations to alternative investments. Are Institutional Investors Meeting Their Goals? Spotlight on Earnings Objectives questions whether institutions are achieving their investment goals, highlighting the use of custom benchmarks that may obscure true performance. The Alternative View: 401(k) Plans Are Better off Without Private Investments challenges assumptions around the promise of private equity in defined contribution (DC) plans — especially when simulations mask access challenges and cost realities. On the other hand, The 60/40 Portfolio Needs an Alts Infusion explores the theoretical basis for going beyond the 60/40 portfolio and considers the market conditions that could make alternative portfolio allocations useful to institutional and individual investors alike. Governance & Decision-Making Strong governance is foundational to investment success. The Unspoken Conflict of Interest at the Heart of Investment Consulting raises concerns about advisor incentives. From the archives, Investment Governance for Fiduciaries: The How and the Why is a timeless exploration of the principles of sound oversight. Great investment governance provides a defensible, repeatable, and documented process that places our beneficiary at the heart of all we do, the authors write. In another evergreen post, Choosing Investment Managers: A Guide for Institutional Investors delves into the complexities of manager selection and ongoing diligence. Structural and Operational Issues Market structure and portfolio mechanics matter. Rebalancing’s Hidden Cost: How Predictable Trades Cost Pension Funds Billions explores how transparency around trading patterns leads to value leakage. Predictable rebalancing policies expose large pension funds to front-running, resulting in billions of dollars in annual losses, the author reports. Volatility Laundering: Public Pension Funds and the Impact of NAV Adjustments exposes the gap between private asset net asset values (NAVs) and their real market value. This phenomenon is known as volatility laundering, and it can give misleading impressions of private asset volatility. Looking at the big picture, Aging Populations Demand Urgent Pension Reforms: Are We Prepared? points to the challenges and opportunities created by the world’s aging population. The author raises a red flag for governments, policymakers, fund managers, pension plans, and financial advisors. From the archives, Global Pension Funds: The Coming Storm draws on global events at the time to illustrate the implications of unrealistic return expectations and government inertia. Constructive Paths Forward Retirement Readiness in Focus: Key Actions for DC Plan Success in 2025 calls for DC plans to focus on optimizing investment strategies, reducing costs, and enhancing participant education to improve retirement readiness. The authors identify the top priorities for DC plans in 2025: target date fund selection, fee transparency, investment lineup evaluation, and staying ahead of regulatory and litigation trends. The Enterprise Approach for Institutional Investors makes the case for treating investment teams as strategic arms of the institution — not separate, siloed units. Organizations that implement investment programs in the context of their broader financial measures of success may benefit from sound investment discipline years into the future, the author suggests. What’s the secret sauce behind the Canadian pension plan system’s track record of robust returns and resilience? Retaining Top Investment Talent: Lessons Learned by Large Canadian Pension Plans outlines how leading funds have modified their HR strategies to attract and retain world-class investment talent. Two additional pieces highlight the growing emphasis on impact and long-term value: Finally, Five Quotes from Financial History to Guide Trustees provides enduring wisdom for decision-makers in an era of constant disruption. Final Thought With long-held assumptions under strain — amid demographic shifts, volatile markets, and rising stakeholder scrutiny — this is a pivotal moment for institutional investors to reassess their mandates. The traditional approach is showing its limits, from underperformance to governance gaps and operational risks. The insights in this collection highlight not just where recalibration is needed, but how institutions can lead. For investment committees, trustees, asset owners, and the investment professionals serving them, the imperative is clear: take stock, ask tough questions, and ensure that today’s strategy is built for tomorrow’s demands. source

Liability-Driven Investing (LDI) is often associated with developed markets, where deep liquidity and a wide range of derivatives allow investors to hedge with precision and meet long-term obligations confidently. Products such as inflation-linked securities, interest rate swaps, and long-duration corporate bonds make it easier to align portfolios with actuarial forecasts and regulatory requirements. In frontier and emerging markets, however, the same philosophy operates under tighter constraints. When market depth is limited and policy shocks are frequent, as in Nigeria, LDI becomes less about instruments and more about discipline. It relies on timing, currency alignment, and interest rate sensitivity rather than on complex financial instruments. The goal is the same everywhere: to meet cashflow obligations reliably. However, in frontier markets, like Nigeria, success depends on adaptability, patience, and structural foresight. Matching Timing with Obligations In practice, applying LDI in emerging markets means translating familiar principles into a far less forgiving environment. The objectives are the same, matching timing, currency exposure, and interest rate sensitivity to future obligations, but the execution relies on discipline rather than derivatives. Investors must work within a narrow set of instruments and use judgment where models and hedges fall short. For Nigerian insurers, particularly those managing life or annuity products, this discipline provides stability amid frequent liquidity shocks, currency devaluations, and shifting regulations. LDI keeps liabilities — not returns — at the center of decision-making. In my experience across actuarial and investment functions in Nigeria’s insurance sector, the strongest balance sheets consistently maintained this liability alignment, even when data infrastructure is weak and market liquidity thin. The following sections outline how Nigerian institutions have applied LDI principles in practice — lessons that hold value for other frontier and emerging markets as well. Mapping the Liability Terrain Nigerian insurance liabilities come in several forms: life obligations with actuarially predictable timing, general insurance reserves with higher variance in cashflow timing, and embedded guarantees with interest sensitivity. Three primary dimensions define the liability structure: Timing: Life and annuity obligations often extend across five-to-30 years. General insurance liabilities may require settlement within six-to-24 months. Cashflow projections must distinguish between these timelines and adjust for reinsurance recoveries and expense provisions. Currency: Currency alignment remains a foundational principle. The Central Bank of Nigeria’s exchange rate management framework experienced a series of adjustments between 2020 and 2025, including a move from a managed peg to a more market-reflective rate. The naira depreciated from ~₦380/USD in 2020 to above ₦1,500/USD by Q1 2025, a decline of over 290% (source: CBN, 2025). For insurers with foreign-currency liabilities, holding naira assets introduces unrecoverable mismatches. Interest Rate Sensitivity: Duration, convexity, and key rate duration (KRD) tools help estimate how liabilities will reprice under shifting yield curves. KRD has been instrumental in identifying exposures to specific tenors, such as the five-year or 10-year points. This granularity is essential in Nigeria, where non-parallel curve shifts are common. Navigating Nigeria’s Market Architecture Nigeria’s yield curve is not a smooth continuum of maturities and pricing. Rather, it behaves as a segmented curve, shaped by government borrowing patterns, institutional demand, and central bank policy actions. Federal Government of Nigeria (FGN) bonds, issued by the Debt Management Office (DMO), dominate the fixed-income space. These instruments offer tenors between two and 30 years, but issuance is often clustered. The secondary market is shallow. As of mid-2025, pension funds held over 60% of outstanding FGN bonds, and a substantial portion were marked as “held to maturity” (PenCom, 2025). Insurance companies, facing similar regulatory treatment under Nigeria’s National Insurance Commission (NAICOM) rules, also maintain low trading activity. This limits portfolio rebalancing flexibility. Monetary policy changes frequently introduce short-term volatility. Open market operations (OMOs), cash reserve debits, and sudden benchmark interest rate changes have led to 200-to-300-basis points yield spikes over a single week. For example, in this year’s first quarter, the 10-year FGN bond yield rose from 16.8% to 22.6% following a surprise monetary policy rate hike and liquidity sterilization campaign (BusinessDay, 2025). These dynamics have three implications for LDI strategy: Parallel duration matching strategies can produce unintended mismatches during non-parallel curve shifts. Active KRD management, even in the absence of derivatives, allows better immunization. Segmenting portfolios between matching and return-seeking buckets improves resilience. Building the LDI Portfolio Under Constraint Constructing an LDI-aligned portfolio in Nigeria requires practical creativity. Portfolio architecture depends on instrument availability, regulatory constraints, and realistic trading liquidity. Core instruments for Nigerian LDI include: Asset Class Key Role in LDI Observations FGN Bonds Matching long-term liabilities Most liquid and regulatory-compliant, but clustered issuance Treasury Bills / Short-Term Deposits Matching short-term reserves High yield variability; useful for P&C claims buffers Corporate Bonds Yield enhancement Scarce issuance, low liquidity; requires strong credit analysis Subnational / Infrastructure Bonds Long-term exposures Offers tenor extension; often illiquid post-issuance Equities Return-seeking only Highly volatile; not relevant for matching unless insurer writes index linked products Alternatives (PE, Infrastructure Debt) Enhancing long-dated portfolios Useful for illiquid liabilities; governance-dependent Duration alignment is most effective when structured around key tenors. In practice, an allocation with similar average duration to liabilities may still result in NAV instability if the asset portfolio is concentrated in short-dated bonds while liabilities peak at the 10-year mark. Insurers with foreign obligations, such as those paying offshore reinsurers, benefit from maintaining US dollar reserves or instruments with US dollar-linked cashflows. Given Nigeria’s limited FX hedging instruments, currency mismatches often introduce downside risks that are unable to be hedged. Managing Volatility Through Structured Scenario Analysis Scenario testing has become a core risk management tool in Nigerian insurance asset and liability practices. Volatility in yields, FX, and inflation is both frequent and severe. Each episode, whether from policy, geopolitical, or supply-side shocks, tests an institution’s positioning. Incorporating regular stress testing into investment governance cycles produces tangible advantages. The most effective institutions model quarterly scenarios across: Interest rate shocks: +300bps parallel and non-parallel shifts, with attention to short-end dislocations. FX devaluations: Simulated 20–30% shifts, benchmarked against historical CBN adjustments. Liquidity events: Disruptions in the repo market or increased capital call requirements. Inflation

With equity markets hitting record highs and the Fed Model signaling historically low valuation spreads, investors face a perplexing landscape. This post explores the intricacies of the equity risk premium, scrutinizes traditional valuation models, and introduces an updated framework to guide strategic decision-making in today’s volatile environment. US stocks hit new record highs following Donald Trump’s re-election to the White House. Market risk appetite remains high, but equity valuations also appear elevated. The Fed Model, which measures the spread between the S&P 500 Index forward earning yield and the US Treasury 10-year yield, is currently at -0.1%, a level not seen since 2002 (See Exhibit 1).   Does the negative Fed Model speak to the end of the equity risk premium? Should investors worry about current equity valuations? In this paper, we address these questions by evaluating the Fed Model through the lens of an intrinsic equity valuation model and disentangling the equity risk premium (ERP) from equity earnings yield. The Fed Model The FED model has become a very popular equity valuation indicator since Edward Yardeni introduced the model in 1998. The model, as defined in equation [1], compares the equity forward earnings yield with the risk-free 10-year Treasury nominal yield. A positive value indicates the stock market is under-valued, and vice versa. The valuation spread is seen as equivalent to the expected ERP.    Fed Model = Earning yield – US Treasury 10 year nominal yield           [1] The intuition is that stocks and bonds are competing assets; therefore, buying riskier stocks only makes sense when stocks can out-earn risk-free US treasuries. However, the Fed Model has continuously faced criticism from investors for lack of theoretical foundation. Intrinsic Equity Valuation The Gordon Growth Model (GGM) provides an estimate on a stock’s intrinsic value based on the assumptions of a constant earnings growth rate, cost of capital and dividend payout ratio (See equation [2]). By following the steps described in equations 3 to 5, we can arrive at a modified version of the Fed Model depicted in Equation 5.  Compared to Yardeni’s model, the modified model no longer assumes the beta to the risk-free rate and the maturity of risk-free yields can vary. Meanwhile, the model indicates that the ERP is negatively correlated with earnings growth rates when fairly valued, i.e. higher earnings growth can lead to a narrower valuation spread. According to FactSet, S&P 500 companies are expected to see annual earnings growth of around 14% over the next two years, well above their historical growth trend. An Empirical Framework Many assumptions behind the GGM do not hold in the real world. For example, the growth rates vary over time; the yield curve is not flat; and so on. Without going through the extensive mathematical theory, we can adopt a generalized model as shown in equation 6 to describe the ERP as the forward equity earnings yield in excess of a linear exposure of the entire risk-free yield curve. Long term beta exposures of the equity earnings yield to risk-free rate can be estimated by using linear regression techniques. In the spirit of model parsimony, I chose 3-month Treasury bill yield and yield slope (10 year minus 3 month) to approximate the entire yield curve. As shown in Exhibit 2, the beta coefficients of equity earnings yields to Treasury yields are statistically significant with t-stat > 7.0.   The historical ERP can then be estimated by using Equation 7 below. Exhibit 3 shows the time series of historical ERP. The current model estimate (as of November 30, 2024) is 2.0%, which indicates a narrow but still positive ERP.  Source:  Bloomberg.  Global Asset Allocation Quant Research. Data from 1/1962 to 11/2024. Historical trends are not predicative of future results. Signaling Effect Is the Modified Fed Model a better valuation signal? To evaluate that, I built two linear models by using 10-year forward stock returns as independent variables and two equity risk premium time series as dependent variables, separately. Exhibit 4 below shows a summary of regression outputs.  The modified model has a better fitness than the original model with a higher R2 and t-stat of Beta coefficients.  Valuation risk is running high thanks to a relentless market rally. The famous FED Model shows equity valuation has flipped into expensive territory. However, I believe higher-than-normal earnings growth is the main reason why the valuation spread has turned negative. Through a new valuation framework based on the intrinsic valuation model, I show that the current valuation level still provides room for positive stock returns in the near term at least. References Weigand, R. A., & Irons, R. (2008). Compression and expansion of the market P/E ratio: The Fed model explained. The Journal of Investing, 17(1), 55–64. https://doi.org/10.3905/joi.2008.701961 Yardeni, E., 1997. Fed’s stock market model finds overvaluation. Topical Study #38. US Equity Research, Deutsche Morgan Grenfell. Yardeni, E., 1999. New, improved stock valuation model. Topical Study #44. US Equity Research, Deutsche Morgan Grenfell. source

The Making of Modern Corporate Finance. 2025. Donald H. Chew, Jr. Columbia University Press, Available February 2025. Donald Chew’s forthcoming book, The Making of Modern Corporate Finance, is a love letter to those who published in the Journal of Applied Corporate Finance, of which the author is the founder and remains its publishing editor. It is a love letter to unfettered capitalism and the financial system that oils the gears of commerce. The book will be of interest to a broad readership but should be required reading for CFA charterholders, like me, who pursued their designation decades ago and who may have — while keeping up with the day-to-day developments in finance — missed the broader perspective on the financial innovations that underpin today’s global system. The subtitle, “A History of the Ideas and How They Help Build the Wealth of Nations,” aptly describes the book’s narrative arc as it works chronologically through four “core subjects”: The corporate investment decision The corporate financing decision Enterprise risk management   Corporate governance and investor communication After a chapter case study on Japan that effectively links corporate finance and social wealth, the history begins with Franco Modigliani and Merton Miller’s late 1950s and early 1960s work on “capital structure and dividend irrelevance.” Rather than capital structure, investors should focus on earnings power — investment in projects that earn at least their cost of capital — and how corporate risks are managed. If capital structure is a red herring, so too is the focus on near-term earnings per share (EPS). Chew offers, as a good example: investors who focused on quarterly EPS figures rather than future earnings power at Amazon. The author follows his robust opening with a discussion of Michael Jensen and William Meckling’s well-cited paper on the agency costs of professional management to the interests of beneficial owners, i.e., shareholders. In the market for corporate control, management is incented to grow rather than focus on earnings power. This led to corporate takeovers in disparate sectors and to the bloated conglomerates of the 1970s, which in turn fostered the reimposition of control through leveraged buyouts (LBOs) and, eventually, private equity. The hefty interest payments imposed by the debt financing of LBOs redirected management’s attention from acquisitions to operational efficiency. The private equity (PE) corporate structure eliminated Jensen and Meckling’s agency issue by controlling board seats or wholesale removal of target companies from public markets. With each theoretical development — Modigliani and Miller, Jensen and Meckling and Stewart Meyers, who helped incorporate the Weighted Average Cost of Capital (WACC)) into discounted cash flow methodologies and subsequently into corporate decisions to continue or abandon a project, and Clifford Smith and Rene Stulz, whose work showed the importance of corporate risk management as an essential component of maximizing shareholder returns – there were practitioners eager to use the new tools. Practitioners included company management, who adopted Bennet Stewart’s concept of “economic value added” (EVA), which resulted in a shift of responsibility from a centralized EPS focus to the various operating units and a focus on earnings power. Modern corporate finance also included a reimagination of corporate incentive structure for executives. Chew contends that if executives at PE-owned companies are paid like owners (recall that this helps eliminate the agency issue), executives at public companies should be paid in a similar fashion. If pay structure and amount are inadequate, public companies will become mere training grounds for the best leaders as they seek superior pay under private equity. Chew discusses at some length the optimal structure of long-term incentives. Finally, the transformation of corporate finance included the development of new markets to support financial innovations. Longtime readers of CFA Institute Financial Analysts Journal and other publications will be delighted to see a full chapter highlighting the pivotal role of book review editor Marty Fridson in helping develop the high yield debt markets that accommodated the surge of debt associated with LBOs. The preceding paragraphs give a sense of the book’s structure and content. However, the overarching narrative is of the United States’s economic power– not its accumulated capital or military strength, but its financial innovation and dynamism. The opening chapter on Japan is bookended by a concluding chapter on China and the differences between its financial system and that of the United States. So far, Chew contends, the Chinese financial system has fallen short of its promise as it has traded off innovation and dynamism for state control — a façade of Western capital markets but without the substance. Examples from history and geography are thought-provoking. For example, a parallel can be drawn between 1970s conglomerates and today’s expansive technology companies, which exhibit both synergies, e.g., Alphabet and advertising, and silos, such as Amazon’s AWS and online sales portal, across multiple business lines. Have the managers of these enterprises solved the agency issue identified by Jensen and Meckling and developed better governance and more disciplined management? Many have dual-class share structures, which tilt control closer to the PE model, but as Chew notes, the effect may be time-limited. Shareholders may accept founder control during periods of superior growth but advocate an eventual switch to a one-share, one-vote regime. Might the technology giants’ expansive reach reflect other factors such as market concentration and monopoly or oligopoly returns? This is clearly a different subject than Chew sets out to address (see Tim Wu’s book, The Curse of Bigness). A second set of questions arises when Chew links the lofty US stock market valuations to the country’s financial dynamism. While he makes a compelling case, market historians will note that the premiums of US and international equity markets have seesawed back and forth over time. Throughout the book, Chew emphasizes the superiority of the US model and the power of corporate finance to generate wealth and alleviate environmental and social problems. To this end, he includes a thoughtful discussion on ESG issues and their relevance to companies and boards. Still, at times, his comments are too broad and categorical

Quantum computing may sound futuristic, but for investment firms, it is at the doorstep. The rapid pace of innovation in quantum computing combined with the threat level posed by a lack of comparable security measures demands swift industry action. Investment in quantum computing technologies reached new highs in 2025, with more than $1.25 billion raised in Q1,[1] and research emphasizes transitioning from development to deployment.[2] While the practical capabilities of quantum are still emerging, investment firms must take seriously not just the opportunities but also the risks. This post outlines immediate steps investment firms can take to strengthen data security and prepare for the quantum era. As quantum capabilities advance, cybersecurity specialists warn that existing encryption standards could soon be at risk. Security experts use the term “Q-Day” to describe the point when quantum computers become powerful enough to break today’s encryption, effectively rendering current protections obsolete. While that threshold has not yet been reached, a related and more immediate danger is already emerging. Malicious actors can “harvest now, decrypt later,” intercepting and storing encrypted data today with the intention of unlocking it once quantum capabilities mature. Why Modern Encryption Methods Fall Short To contextualize the risks posed by quantum computing, it is necessary to first review the mechanisms underpinning modern cryptographic systems. Digital information, be it text, numbers or visuals, is universally represented in binary format. The sequences of zeros and ones allow for interoperability across global computing networks. Encryption protects digital communications by converting original binary sequences into unintelligible forms through mathematical transformations. This safeguards client records, trading data, internal communications, and other proprietary data. It also underlies the digital signature algorithms and hash functions used to ensure security and privacy in blockchains. Encryption can be divided into two general types: Private-key encryption, which requires secure key exchange between parties. Public-key encryption, also known as asymmetric encryption which employs distinct public and private keys. The RSA algorithm, widely used in financial systems, illustrates public-key encryption. Its security is derived not from the secrecy of the method, as used by private-key encryption, but from the computational infeasibility of factoring large prime numbers with classical computers. However, this reliance on mathematical intractability renders the system vulnerable to advances in computational capability, particularly quantum computing. In the 1990s, computer scientist Peter Shor introduced a quantum algorithm capable of efficiently factoring large integers, thereby undermining the security of RSA and other widely adopted encryption schemes. Although originally of theoretical interest, given the immaturity of quantum hardware at the time, this algorithm is now of profound significance as quantum technologies advance. What once seemed purely theoretical is now moving closer to practical reality, thanks to rapid technological progress. The estimated resources required to break RSA encryption have steadily decreased, from about 20 million qubits[3] in 2019 to fewer than 1 million qubits in 2025 (current quantum computers run 100 to 200 qubits).[4] To put this in perspective, Google estimates their 105-qubit quantum processor can compute in just five minutes what would take today’s fastest non-quantum supercomputers around 10 septillion (10²⁵) years.[5] Shor’s algorithm demonstrates that, once sufficiently powerful quantum computers are realized, many current cryptographic systems will become obsolete. The consequences extend across domains such as financial transactions, government data, and private communications. Unlike conventional cyberattacks, such a breach could occur undetected, presenting a systemic risk of unprecedented scale. The Harvest Now, Decrypt Later Threat Malicious actors may already be intercepting and archiving encrypted data with the intention of decrypting it retroactively once quantum computational resources become available. Once they possess the data, there is little a firm can do to prevent decryption using future advanced computing power. The threat to financial institutions is particularly severe. “Harvest now, decrypt later” highlights the urgent necessity of proactive security measures. Reactive strategies will be ineffective once Q-Day occurs; data compromised in the past and present will become accessible. Therefore, anticipatory adoption of quantum-resistant cryptographic techniques is essential. Why Current Post-Quantum Cryptography Methods Won’t Hold As firms look for ways to defend against future quantum breaches, two main approaches have emerged. The first, Post-Quantum Cryptography (PQC), strengthens existing digital systems by using new mathematical algorithms designed to withstand quantum attacks. The second, Quantum Key Distribution (QKD), uses principles of quantum physics to create inherently secure communication channels. Post-Quantum Cryptography (PQC) refers to classical cryptographic algorithms designed to withstand quantum computational attacks. Unlike quantum cryptography, PQC does not utilize quantum phenomena but instead relies on mathematical problems believed to be resistant to quantum attacks. The implementation of PQC represents an interim safeguard, as it strengthens resilience against near-term quantum advancements. However, PQC is not a definitive solution. As quantum hardware evolves, algorithms presently considered secure may eventually be compromised. Consequently, PQC should be regarded as a transitional measure within a broader, dynamic framework of cybersecurity. While PQC provides interim protection, Quantum Key Distribution (QKD) leverages the principles of quantum mechanics to enable secure communication channels. Specifically, QKD exploits long-distance quantum phenomena to guarantee that any attempt at interception can be detected. For example, if entangled photons are employed in key distribution, eavesdropping introduces observable disturbances, thereby alerting legitimate parties. Unlike classical methods, QKD offers theoretical security guaranteed by physical law rather than computational difficulty. Although pilot applications exist, including land-based fiber optics and satellite-based quantum networks, current limitations in scalability and infrastructure hinder widespread adoption. Nonetheless, QKD represents a critical avenue for long-term secure communication in the quantum era. Firms Should Act Now The impending disruption posed by quantum computing necessitates coordinated governance. Yet while governments are only beginning to grapple with the scale of quantum threats, many financial institutions remain hesitant to act. A recent survey shows that firms are waiting for regulatory mandates before addressing quantum risk in their risk management frameworks, a delay that could prove costly.[6] At the same time, migration to quantum-resistant systems presents formidable challenges for financial institutions. The process involves substantial cost, technical complexity, and extended timelines for implementation, including system upgrades and workforce retraining. Compounding these challenges is

Early in my career, I missed out on promotions even though I worked hard. As an engineer by training, I assumed my success would be performance-based. I mistakenly thought that my value to an organization would be measured solely by my technical skills — how quickly and accurately I could compute the prices of complex financial derivatives. It wasn’t until years into my banking career that I realized my mistake: I had overlooked image and exposure. Harvey Coleman’s 1996 study on career advancement revealed that career success depends on a combination of performance, image, and exposure (PIE). In fact, only 10% of success correlates to performance, while image accounts for 30%, and exposure for a staggering 60%. If you’re delivering results but are still being passed over for promotions, it’s time to take stock of the missing pieces in your PIE. Image: Your Reputation at Work What are you known for at work? In my first job as a foreign exchange (FX) sales professional at a Singapore bank, I didn’t do well because I lacked social skills. Even though I improved my selling skills significantly after a year, the poor impression my colleagues and bosses had of me was fixed. It was difficult to change their minds. If I had stayed on, I would have been a mediocre salesperson at best. So, I left to pursue my master’s in finance. When I joined Citi in 2001 as a derivatives structurer, I showed a strong interest in teaching. I volunteered to conduct product training for both clients and colleagues. Very quickly, I built a reputation not just as a skilled structurer but also as an excellent trainer. This reputation led to invitations from sales heads across Asia to train their teams and customers, significantly enhancing my personal brand. How to Build Your Personal Brand Develop a signature skill, something that is different from your core expertise but can be incorporated into your work. For instance, if you’re a junior research analyst in an asset management company, you could develop video editing skills. By offering to shoot and edit videos for senior colleagues presenting at investment conferences, you will be seen as a valuable team player whom they want to bring along to events. If you have already worked at your current company for more than a year, changing your internal brand can be a challenge. I suggest focusing on developing your external brand and letting it influence your internal standing. Volunteering with a CFA society, organizing events, or serving as a speaker liaison are great ways to do this. I am proud to be a speaker at the CFA Institute LIVE 2025 event in Chicago next May. Share these experiences on LinkedIn and other outlets, as I do, to showcase your capabilities as a master networker or organizer. Your employer will see you in a different light. Learn to be a storyteller. Stories resonate more deeply than facts and figures. Use your stories to let people know about your personality, abilities, and values. They are crucial parts of your personal brand. Exposure: How Well Do People Know You? Exposure is about ensuring that the right people — your colleagues and senior leaders — are aware of your contributions. Without visibility, you won’t get promoted. I learned this the hard way. When I was a vice president (VP, a mid-level rank) at an American bank, my boss went on holiday and asked me to present the weekly market update to the sales and structuring teams across Asia on his behalf. I told him I couldn’t host the meeting because I was busy preparing for my professional exams. But this was just an excuse. In reality, I feared public speaking. He got another VP to do it instead. By year-end, when it came to promotion nominations, guess who my manager chose to promote to director level? That’s right, not me, but the other VP. If you perform well in your job but don’t speak up in meetings, you’re making it difficult for managers to know about your work. Even if your own boss wants to promote you, no one else in the company will support you because they hardly know you. It comes down to this simple equation: How good you are × Your presentation skills = How good people think you are So not only must you do good work, but you must also seize opportunities to let people know about the work you do. How to Increase Exposure Speak Up During Meetings: Share your insights, ask thoughtful questions, and make sure your voice is heard. Volunteer for High-Visibility Tasks: For example, offer to emcee the company’s annual dinner. Pursue International Opportunities: Internal transfers to different offices or countries can significantly boost your exposure. I worked in London and Hong Kong during my career, and these stints allowed me to build relationships with global leaders. Engage with the Global Community: Attend CFA events outside your home country to connect with a broader network. Complete Your PIE Promotions require more than just hard work and results. By mastering the PIE framework, you’ll position yourself for long-term career success. source

Editor’s Note: The following is an adapted excerpt from Stephen R. Foerster’s book Trailblazers, Heroes, and Crooks: Stories to Make You a Smarter Investor (Wiley 2024). Autopilots Gone Wrong Aeroflot 593 set off on March 22, 1994, for a 14-hour flight from Moscow to Hong Kong with 75 people on board. Thirty-nine minutes after its take-off, it reached its cruising altitude. The plane was flying on autopilot, and everything was going according to plan. The pilot in command (PIC), Viktorovich Danilov, was in the passenger cabin, resting. Back-up PIC, Yaroslav Vladimirovich Kudrinsky, was sitting in the left seat. Co-pilot Igor Vladimirovich Piskarev was in the right seat. All pilots were highly experienced. Take Your Kids to Work Kudrinsky’s two children were on the flight: 12-year-old daughter Yana and 16-year-old son Eldar. Another pilot, Vladimir Makarov, who was flying as a passenger, took them to the cockpit. Kudrinsky invited Yana to sit in the left seat where he had been sitting and to “fly the airplane a bit… Go ahead, take the controls.” Kudrinsky then set the autopilot to make a slight turning maneuver. The plane gently turned left, then right, back to the original heading. This gave Yana the impression she was causing the plane to turn. Then Eldar took the seat. Kudrinsky again set the autopilot. Eldar asked his father if he could turn the control wheel. Kudrinsky said “yes.” But Eldar applied more force than his sister, turning the control wheel so that the plane would turn at a 15-degree angle, while the autopilot was trying to hold it at 5 degrees. Autopilot Override Autopilot functions were invented in 1912 by American Lawrence Sperry. Sperry attached a gyroscopic heading indicator to a rudder to balance the plane. On June 18, 1914, Sperry showcased his invention at the Airplane Safety Competition in Paris. While flying past the judge’s stand, Sperry engaged the stabilizer device. He then raised his arms over his head while letting the autopilot balance the plane. On the next lap his engineer climbed onto the wing of the plane to demonstrate the autopilot’s balancing ability. On the final lap, both stood on the wings, waving to the crowd. Sperry was awarded first prize. Back to Aeroflot flight 593, inadvertently Eldar overrode the autopilot function that controlled the angling of the plane. Eldar continued turning his control wheel to the right. But now with the autopilot disengaged, the right bank began to gradually increase and passed the operating limit of 45 degrees. “Why Is It Turning?” Eldar noticed something wasn’t right. “Why is it turning?” The plane was now turning at a 50-degree angle. It began to descend and started to vibrate. The g-force was drastically increasing, making it difficult for Kudrinsky to get into the seat where his son was. Piskarev began attempting to counter the roll, but it was too late. The plane was losing altitude, and the aircraft began to stall. Warnings Then “Everything’s Fine” Warnings were sounding. With the plane now in a dive at 460 mph, and with the increased g-force, the pilots were disoriented. Then Piskarev was able to reestablish lateral orientation and shouted to Eldar: “To the left! There’s the ground!” The g-force was now exceeding the structural limits of the plane. Kudrinsky was trying to get into the left seat, yelling at Eldar: “Get out!” Piskarev recognized the current primary danger of the high speed and exclaimed: “Throttle to idle!” Piskarev was able to pull out of the dive, but he over-corrected. The plane started rolling uncontrollably. Piskarev yelled out: “Full power!” A second later, Kudrinsky finally regained his seat. Kudrinsky and Piskarev were desperately trying to regain control of the plane. The plane’s rotation had slowed. Kudrinsky was alternating the rudder pedals trying to stop the rotation and succeeded, but the speed had again increased, to 230 mph, and the altitude was only 1,000 feet. Kudrinsky exclaimed: “We’ll get out of this. Everything’s fine…Pull up gently!” But everything wasn’t fine. The plane crashed into a mountain in Siberia. All 75 on board were killed. Autopilots for Investors We rely on autopilots in investing. Often, we don’t understand how they work and their limitations. Automation has made investing more efficient. Index funds have drastically reduced fees. But not all index funds are equal. For example, with a Canadian index fund, you’re getting major sector concentration. Target date (life cycle) funds, with stocks and bonds that reallocate through time, are autopilots. As investors age, their exposure to riskier equities decreases and the exposure to less risky bonds increases. Yet more than age impacts an investor’s risk tolerance. Stop-loss orders, another autopilot, are designed to limit losses. But in volatile markets, there is no guarantee that you could sell at the stock-loss price. Yet we override autopilots at our peril. Despite all the attempts by Kudrinsky and Piskarev to save the plane, had they just let go of the control wheel, the autopilot would have prevented the crash. Buying and holding an index fund takes our emotions out of play and helps us to avoid mistakes. Studies have shown that investors — particularly men — are overconfident in their trading abilities and trade excessively. But this hurts performance, and they would have been better off buying and holding an index fund. A final lesson from aviation: When disaster strikes, we need to recover the black box, understand what went wrong, and learn from our mistakes. Even Warren Buffett makes mistakes such as by investing in airline stocks. He once quipped, “If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” At least Buffett admits and learns from mistakes. source

New Year, New Investments Many of us have crawled into 2024 with a sense of cautious optimism that the mental battering we all took in 2023 won’t repeat itself. While that may yet be a difficult feat during a US presidential election year, the long-foretold US recession has failed to materialize, and the market seems to have more clarity around interest rates. So, many of us are positioning ourselves for new opportunities in a bright new year. In wealth management, 2024 has brought renewed enthusiasm for alternative investments. The beauty — and complexity — of alternatives is that they encompass so much, from art to real estate to private equity. For wealth managers, this can present challenges in terms of how we best serve our clients. Nevertheless, as private markets and alternative assets become more democratized and accessible, our clients are increasingly intrigued by them. Indeed, in its “2023 World Wealth Report,” Capgemini recommended wealth managers strengthen their focus on alternative investments to meet evolving client tastes amid a more competitive outlook. “At the end of the day, we believe that most clients who have a multiple decade investment horizon can tolerate about 30% in alternatives,” Daniel Scansaroli, head of portfolio strategy at the CIO Americas office of UBS, told Barron’s. Five Arguments for Alternatives 1. Diversification Matters We emphasize this principle with clients all the time. A diversified portfolio is a resilient one, and alternatives are among the best diversifiers out there. As our clients look for better returns and new types of investments, alternatives could offer them something they may not have considered before or been too timid to try. 2. Massive Potential Despite the growing curiosity around them, alternatives still only made up 14.5% of client assets in 2022. Only one in three wealth management executives plan to add more alternative products to their portfolios. Such modest numbers show real room for growth, particularly if wealthy individuals seek to emulate their counterparts in endowments and family offices. Large endowments, for instance, have about 60% of their assets in alternatives. 3. Wealth ≠ Financial Savvy Our clients may have money to invest, but they don’t always know how or where to invest it. That’s where we come in. The role of a wealth manager is never more important than when clients are looking for the market outliers and the new opportunities. Alternative investments have unique benefits, but they also have distinct complications — tax considerations, etc. — that wealth managers must be ready to navigate for and with our clients. 4. Clients May Own Alternatives and Not Know It What constitutes an investment isn’t always obvious, and the guiding hand of a financial adviser can highlight the low hanging fruit. While clients may own or want to own art, shoes, jewelry, and other collectibles, they may not realize the role such items can play in their portfolios. Take the legendary Hermes Birkin luxury purse. They are incredibly expensive, but they can also appreciate in value. The annualized returns on a Birkin, which vary based on material, size, and scarcity, average 5.7%, according to a 2020 Deloitte report. 5. Digital Is in Demand Wealth management firms have been understandably cautious about digital assets given their general lack of transparency and changing regulatory landscape. But investors — especially younger one and those in Asian markets — are enthusiastic about digital options. Despite their volatility, cryptocurrencies remain the most popular digital asset and, like the alternatives sector more broadly, represent a rapidly expanding market. Wealth managers who can offer clients insights and options in the digital space can start to differentiate themselves from the competition. Wealth managers can continue to focus on their traditional strengths while also searching out the latest investing innovations and capitalizing on them for our clients. The instability and uncertainty of recent years demonstrate how vital it is to look beyond traditional securities and embrace a flexible mindset. For wealth managers, alternative investments are ripe with opportunity and, through thoughtful allocations, can help us navigate market challenges as they arise. If you liked this post, don’t forget to subscribe to Enterprising Investor and the CFA Institute Research and Policy Center. All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Image credit: ©Getty Images / Steven Puetzer Professional Learning for CFA Institute Members CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker. source

Tokenized money market funds (MMFs) are transforming institutional liquidity but also introducing new cybersecurity threats. Issued as blockchain-based tokens, these funds offer institutions a modern alternative to static cash: programmable collateral, faster settlement, and composable yield. Recent pilot programs by major players like Franklin Templeton, DBS, Goldman Sachs, and BNY Mellon show the industry is strategically thinking about the viability of these funds. But with innovation comes exposure. While traditional MMFs live on secure, closed systems, tokenized funds interact with public or semi-public blockchains, smart contracts, and digital wallets. This shifts the cybersecurity threat model away from back-office fraud to technical exploits, key theft, and protocol-layer compromise. Each of these risks has been seen in the DeFi world, with hundreds of millions of dollars in losses, and institutional platforms must now build security models that combine blockchain integrity with legacy controls. Below we outline what portfolio managers, treasurers, and risk officers should do now to operate securely. While daily vigilance is required to guard against cyberattacks, October is Cybersecurity Awareness Month and is as good a time as any to reevaluate enterprise cyber-risk management. Human Risk: The Cybersecurity Education Gap Even with world-class technical controls, a poorly trained team can open the door to disaster. Blockchain infrastructure introduces new operational behaviors that most traditional finance professionals are unfamiliar with wallet management, signing mechanics, phishing prevention, and smart contract awareness. Institutions looking to use or issue tokenized MMFs must educate their staff not just on cybersecurity hygiene, but on the core principles of blockchain-based finance.This means training treasury, ops, and compliance teams on wallet architecture, running simulated phishing attacks, and updating incident response playbooks to include blockchain-specific scenarios. Here are six critical safeguards for institutions exploring tokenized MMFs: Audited Smart Contracts:Ensure all smart contracts undergo independent security audits to detect vulnerabilities and verify that code aligns with intended financial and regulatory functions. Key Management Best Practices:Implement multi-signature wallets, hardware security modules, and strict access controls to safeguard private keys and prevent unauthorized transactions. Certified Custodians with Incident Transparency:Partner only with regulated, certified custodians who maintain clear, timely disclosure of security incidents and maintain robust recovery protocols. Dual-Sourced Oracle Infrastructure:Use multiple, independently operated Oracle providers to prevent single points of failure and ensure accurate, tamper-resistant market data feeds. Redemption Circuit Breakers:Integrate automated circuit breakers to temporarily halt redemptions or transfers during anomalies, preserving liquidity and protecting investors from cascading risks. Employee Training on Digital Asset Operations:Conduct continuous, role-specific training on cybersecurity, compliance, and digital asset handling to minimize human error and insider threats. The Regulatory Signal: Cyber Risk is Not Optional U.S. and global regulators are rapidly tightening digital asset oversight. Firms waiting for regulatory mandates may find themselves reacting too late. Early movers will gain not just compliance readiness—but market trust. Actionable Next Steps Cybersecurity in the tokenized era isn’t just about code and cryptography, it’s about people.  Institutions entering digital markets need to think beyond firewall settings and toward comprehensive education and training. The firms that succeed with tokenized MMFs will be those that treat staff fluency in blockchain and cybersecurity as seriously as they treat fiduciary duty. Next steps can include: 1. Create an internal blockchain/cyber education program in partnership with HR or L&D.2. Perform a cyber audit of every third-party provider.3. Run incident simulations involving token loss, oracle failure, and protocol attacks.4. Review insurance coverage for digital asset exposure.5. Update access control policies to reflect blockchain access risk. Empowered Staff = Secure Infrastructure As MMFs evolve from pilot to portfolio building block, CIOs and risk officers must not only assess external security risks but also prepare their internal teams to operate responsibly in a digital finance environment. source

Family offices have evolved significantly from their origins as closely held structures for wealth management. Today, they are complex organizations facing an ever-changing landscape of legal, regulatory, reputational, and financial challenges and opportunities. The increasing number of ultra-high-net-worth families has spurred the need for modernized approaches to wealth management—ones that emphasize digital presence, privacy, reputation, and robust risk management strategies. This blog post explores how family offices are transforming, the innovative models they are adopting, and the practical steps they can take to address emerging risks while preserving wealth. Emerging Models in Family Offices Many family offices, once dedicated to serving a single family, are transitioning into full-fledged asset management firms with funds seeded by the anchor family. Some operate under a unified brand, managing diverse strategies, while others fund independent managers who retain their own brands. Many are adopting traditional endowment-style strategies, which emphasize diversification through hedge funds, private equity, and real estate. These new investment models include direct investments with and without co-investors, syndications, and closed-ended funds supported by third-party capital. Model 1 shows a unified brand with different products. Usually, the family office (LP) receives equity in the underlying general partners management company (GPs). Model 1. A unified brand with different products. Model 2 is a model that seeds GPs, oftentimes with a management company stake. Model 2: Anchor family seeds GPs. These entities differ from other traditional asset management firms in that oftentimes they’re closely related to the founding family and may have been a single-family office before and are effectively a spin out of the internal investment team. Many of these firms are strategically designed to invest across the entire capital stack, much like a traditional family office balance sheet, allowing for greater flexibility and alignment with family goals. In addition, they leverage the market relevance and reputation of their anchor family to attract top talent, engage investors, and access unique deal opportunities — distinguishing their position in the competitive financial landscape. By pooling resources, these entities subsidize high-quality front-office operations while spreading middle- and back-office costs across their funds. Over time, such family offices may evolve into institutional asset managers, gaining enterprise value from fee streams and fund performance. Oftentimes this is a shared services platform that is offered to GPs either perpetually or until they become scaled and stabilized independently: Key Advantages of Modern Family Office Models: Flexibility: Investments across the entire capital stack provide greater alignment with family goals. Cost Efficiency: Shared services platforms help offset high-quality operational costs by pooling resources. Strategic Growth: Over time, these family offices can evolve into institutional asset managers, generating value from fee streams and fund performance. Next-Generation Leadership and Strategic Initiatives A growing trend in family offices is the active involvement of next-generation family members, who often raise their own funds to extend the family’s legacy. This shift fosters innovation and diversification in wealth management. Key Initiatives by Next-Gen Leaders: Raising special purpose vehicles (SPVs): Targeted investments with highly negotiated terms and governance Seeding former in-house investors: Creating evergreen vehicles or blind pool funds to pursue specialized strategies. Direct investments: Engaging in real estate, venture capital, private credit deals, and other strategies. These approaches not only empower the next generation to build their own enterprises but also help cultivate relationships with other high-net-worth families and align with modern investment practices. Layers of Protection: Building Resilient Family Offices Risk management lies at the heart of effective family office operations. The integration of cultural, structural, and legal safeguards is crucial for preserving family wealth. 1. Cultural Safeguards A strong stewardship culture ensures ethical decision-making and alignment with family values. No legal structure can substitute for the trust fostered by responsible governance and integrity. 2. Structural Safeguards Proper ownership structures, such as trusts and foundations, isolate liabilities and shield the family’s assets. Aligning fund formation with family goals prevents conflicts and promotes transparency. 3. Insurance Coverage Comprehensive insurance policies are essential for mitigating risks. These include: Directors and officers (D&O) Insurance Errors and omissions (E&O) Insurance Cyber liability insurance These safeguards protect against financial loss and unforeseen challenges, ensuring long-term stability. Understanding Liability Exposure Family offices are increasingly exposed to market risks, particularly in industries prone to valuation bubbles or regulatory scrutiny. Examples include: Emerging technologies: Sectors like blockchain, cannabis, and electric vehicles. Fraud and mismanagement: Associations with companies like FTX or Theranos can tarnish reputations even without direct involvement. Board member liability: Inadequate D&O insurance at portfolio companies and/or the lack of D&O insurance at the investment management company can lead to personal legal claims for investors serving as board members. To mitigate these risks, family offices must ensure proper due diligence, diversified portfolios, and adequate insurance coverage. Building Resilience in the Digital Era As digital threats grow, family offices must adopt robust cybersecurity measures to protect sensitive information and maintain their reputations. Best Practices for Cybersecurity: Robust encryption: Safeguards data from unauthorized access Employee training: Educates staff on recognizing phishing and other cyber threats Disaster recovery plans: Ensures swift recovery in the event of data breaches or cyberattacks Additionally, regular audits and proactive reputation management strategies are vital for addressing potential vulnerabilities. Leveraging Resources for Excellence Family offices can benefit from learning and networking opportunities to strengthen their risk management strategies. Recommended resources include: Key Takeaways Family offices are navigating an era of unprecedented complexity and transformation. By adopting innovative operational models, empowering next-generation leadership, and prioritizing risk management, these entities are well-positioned to safeguard their legacy while driving sustainable growth. As the financial landscape evolves, vigilance, adaptability, and a commitment to excellence will be key to thriving in the modern era of wealth management. source