As mutual fund governance continues to evolve, selecting the right trustees is more important than ever. With over two decades of experience collaborating with well-regarded fund boards, we have identified some trends to consider when choosing your next trustee.
Trustee Search Tips
Recruiting mutual fund trustees has become highly competitive and great talent moves quickly! Based upon the most successful processes and outcomes we have witnessed, here are some recommendations for your next search:
The right trustees can future proof a board and strengthen its foundation. We are here to help you navigate these trends and recruit trustees who will add lasting value.
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Brett Stephens is the CEO of RSR Partners and helps lead the firm’s Board & CEO Services. Maryann Bovich is Co-Head of the firm’s Asset Management practice and Head of the Mutual Fund Trustee practice.
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1993 by industry icon Russell S. Reynolds, Jr. In 2017, the firm expanded its capabilities in Asset Management through the addition of Higdon Partners. Over the past 30 years, the firm has conducted thousands of projects for Boards and CEOs at public, private equity owned, and family-owned businesses across a range of industries including asset management, consumer markets and enterprises, financial services, healthcare, industrial, marketing and digital, and technology. To learn more about RSR Partners, click here.
Grateful. Thankful. Optimistic.
Given the turmoil in the world around us, we can’t help but be more reflective and thankful at this time of year. We are grateful for family and the relationships in our lives. We are thankful for our wonderful clients and those candidates with whom we have partnered. We are optimistic about the new year ahead of us.
As another successful year in search concludes and we look back on 2023, we are sharing below some observations made during the course of our work. We always welcome a conversation with you whether it’s a quick hello or to discuss any specific needs of your organization. Our team looks forward to staying in touch in 2024!
ENDOWMENTS, FOUNDATIONS, AND OCIOs
FAMILY OFFICES
MUTUAL FUND BOARDS
OPERATIONS
INVESTMENT/WEALTH MANAGEMENT
REPRESENTATIVE SEARCH WORK
| Independent Trustees for $150B Mutual Fund Board | Executive Chairman for $30B OCIO | CIO for $1B Endowment |
| COO for $14B Endowment | President for Family Office for a Technology Billionaire | Managing Director, Public Investments for $3.5B Foundation |
| Director of Portfolio Analytics for $8B Endowment | CIO for a $3B Foundation | Senior Investment Manager, Private Investments for $25B Endowment |
| Managing Director, Private Investments for $4B Foundation | Independent Trustees for $450B Mutual Fund Board | Managing Director of Public Investments for a Private Investment Fund/Family Office |
| CFO for Family Office for a Technology Billionaire | Director of Healthcare Investing for $8B Endowment | Head of Client Portfolio Management for $50B Private Bank/wealth manager |
| Director of Finance for Family Office for a Private Equity Firm Founder | Investment Officer for $50B Wealth Manager | Independent Trustee for $100B Mutual Fund Board |
| Investment Director – Operations for $8B Foundation | Co-Head of Research for $50B Wealth Manager | Director of Operational Due Diligence for $20B Foundation |
| Heads of Marketing and of National Accounts for a $1T+ Global Asset Manager | Principal for a $11B Secondary Private Equity Firm | CIO for Multi-Billion-Dollar Family Office |
This article was originally published by Corporate Board Member.
Boards that are built to last evolve with the changing needs of their companies and leadership teams. Consider these four guideposts.
The third quarter of 2021 was the most active Q3 for global IPOs in 20 years, according to EY. The IPO rebound, popularity of SPACs and continued surge of private equity and venture capital activity has put tremendous pressure on boards to be ready for being a public company. As a result, many lessons and themes have emerged that serve as beacons and sirens for all boards to consider.
Over the course of our 30 years advising boards and CEOs, what clearly stands out is that the boards that are built to last evolve with the changing needs of their companies and leadership teams. In addition, considering the challenges and opportunities presented by ESG and DE&I initiatives, the stakes for boards to appropriately address stakeholders and have a meaningful impact are at a generational precipice. Accordingly, we are sharing our insider’s perspective on the four most important guideposts your company or organization should think about when building or enhancing your board.
#1: Board Architecture
In the real estate industry, there is a saying that, “the taller the building is, the stronger the foundation needs to be.” The same applies to creating boards of what we call “forever businesses.” As with the previous inflection points in corporate governance best practices, the past two years have reshaped the thinking around how to build a board that is strong enough to confront inevitable headwinds. Every board must start or revisit what their ideal board framework is to successfully execute the company’s strategy in today’s environment and in the next 10+ years.
1. Vision, Purpose, Strategy: All boards must approach their governance framework by understanding the journey they will need to take to reach their aspirational future state.
2. Stakeholder Interests Analysis (SIA): A new but now critical component for all owners and boards is to understand the ecosystem of stakeholders who will have influence or direct impact on the organization.
3. Capabilities: Boards should identify the skills and experiences directors needs to possess to help govern the company and advise management through any challenge.
4. Committee Structure: The number, types, and charters needed for each committee to effectively govern should be carefully crafted. Boards are moving past the standard three committees to include separate risk and finance committees as well as climate, digital and cyber which will require new competencies on the board.
5. Board Size: The number of directors, including independent versus management, should be determined in advance of building a board.
6. Governance Guidelines and By-laws: These should be developed early and include annual director versus classified elections and governance best practices.
#2: Board Leadership
Once the board architecture is finalized, the most critical and important decision is determining the leadership structure of the board, the characteristics of each key position, and who will serve in those roles. Especially for companies preparing for an IPO, the chair of the board, lead director and committee chairs will heavily influence the capabilities, effectiveness and culture of the new board.
1. Board Chair: Every organization has a unique journey ahead of them. Whether it is appropriate to have an independent board chair versus a combined chair and CEO is situationally dependent. Often, the capabilities and experience of the CEO must be overlayed against the needs of shareholders and other stakeholder groups. The board chair sets the tone and tenor for almost all significant forthcoming decisions.
2. Lead Director: If the board determines the best board leadership structure for several years is a combined chair and CEO role, it is imperative to clearly define and empower the duties of the lead director to help carry the workload of the chair and CEO as well as serve as an effective counterbalance to the internal power dynamic.
3. Committee Chairs: As most of the heavy lifting is handled by committees, it is critical for those chairs to have previous committee experience, the necessary capacity and the relevant capabilities to serve. ESG, DE&I and other significant compliance and oversight issues are landing on the doorsteps of the committee chairs, and it is their responsibility to help move the board and their fellow directors forward on addressing these issues.
#3: Board Leadership Succession
One of the most important but often overlooked aspects of building a board is Board Succession Planning. Many boards will prioritize and focus their time and attention on adding directors who can address specific capability gaps when the opportunity arises. This is because succession tends to become apparent when a retirement age or term limit is reached. During the last two years, we have seen a material weakness in the preparedness of boards to have actionable solutions available to address unexpected retirements, especially with committee leadership positions. Some boards approach succession planning like CEO succession planning. However, unlike CEO succession planning when a small number of executives are being groomed and developed for the position, more optionality is required for board succession planning given the demonstrably larger number of directors. All boards need to have a short-term and medium-term succession plan and roadmap for all the key leadership positions that is reviewed and confirmed annually.
1. Develop Director Succession Roadmap: An anticipated and emergency plan should be completed annually for each board leadership position. Ideally, the plan should consider how to fill the position if the need arises immediately, in one year, three years, five years, etc. Boards must pay close attention to the skills, experiences, and behaviors they desire in their leaders.
2. Refreshment: Build your roadmap with the intention that committee chairs will rotate every five years.
3. Diverse Board Leadership Equally Important: Similar to the board as a whole, leadership positions on the board must exemplify diversity as well. This will signal the board’s commitment to diversity as well as help enhance board culture.
4. Board Evaluations: The assessments of the individuals’ performance in these leadership positions must be part of the annual board evaluations. Expectations for the positions are rapidly evolving.
#4: Board Recruiting
The board recruiting landscape is currently incredibly active and competitive. There continues to be an urgency to recruit new directors who can add diversity of thought, experience, expertise, age, ethnicity, gender and/or geography. Whether your board is preparing to go public or is a public company board that just needs to address or enhance a specific capability gap, follow these best practices that we have gathered from advising a wide spectrum of clients on board recruiting.
1. Failing to plan is planning to fail. While focusing on addressing your most pressing gaps on the board, only add a director who has succession potential for one of the board leadership positions. If the director does not have that potential, it will present significant issues down the road.
2. Start yesterday. Many boards wait to recruit until it is definitively known that there will be an “open seat.” What we have learned from working with some of the most effective and well-run boards is they develop a candidate pipeline six months before the need is anticipated. In many cases, boards start sowing seeds with high priority candidates 12 – 24 months in advance.
3. Add what you need—not what you lost. When directors retire or leave a board where they played a significant role, the board needs to avoid the temptation to try to replace the voice and perspective that was lost.
4. Prioritize talent over title. Boards who are willing to focus less on a candidate’s title and more on specific expertise have a better chance of identifying candidates who also have the necessary knowledge to have a real impact and improve the effectiveness of the board. Serving on a board requires someone not only with a specific capability but also broad general management experience. Candidates with previous board experience typically will have an impact immediately and beyond their specific area of expertise. Additionally, it is important to recognize that titling structures differ from company to company and industry to industry. A CEO may bring cachet to the board, but many non-CEOs bring further valuable contributions.
The value of a properly functioning board cannot be underestimated. Your board plays a crucial role in the success of your business. With growing shareholder activism and stakeholder pressures, better corporate governance can only be achieved through a successful working relationship between your board and management as well as positive social and cultural board dynamics and interaction. Taking the necessary time and effort to build or enhance your board is time wisely spent.
About Our Board & CEO Services Practice
Our Board and CEO Services team partners with CEOs and boards to understand issues, assess opportunities, and strategically advise to ensure sustainable growth strategies are optimized. We are committed to executing an action plan that addresses sensitive and complex leadership needs and ensures clients are well positioned for the future. RSR offers trusted advisement rooted in years of experience and market knowledge. We excel at optimizing board and CEO effectiveness through transformative thinking about structure and operations. This helps us to engage closely with clients to drive greater accountability and enhanced performance. Our practice group leverages RSR Partners’ renowned experience in corporate governance with the firm’s industry and human capital consulting expertise to create an integrated and seamless approach. The range of services we provide to boards and CEOs include:
Board Services
CEO Services
Over the past year there has been a notable increase in demand from RSR Partners’ clients for experienced professionals with established relationships in the venture community. Going forward, we anticipate that this demand will continue to grow, especially as venture funds’ dry powder is at historic levels.
Record Year for Venture Investing
Consider the landscape for all private investing over the last 10 years. According to Preqin, approximately $4.4 trillion was invested in both private equity and venture in 2020 compared to $1.7 trillion in 2010. In venture alone, emerging companies raised $130 billion in 2020, a 14% increase from 2019. Of note, the technology and health care sectors saw an increase in deal flow, driven in part by pandemic-related innovations. Instead of slowing down in 2020, venture capital funds set new records for deal activity and fundraising, and also turned in the second highest year for exit valuations with three of the top-10 tech IPOs of all-time (AirBnb, DoorDash, and Snowflake).
The Need for Stronger Teams
As institutions build up their exposure to venture, they must be mindful of shifting dynamics. Established venture managers account for over 70% of the fundraising, yet among that group the top decile managers remain difficult to access. Consequently, an organization building their venture portfolio today may need to tap new and developing managers where, according to Cambridge Associates, over 50% of the top performing funds can be found. The challenge is that venture has the widest dispersion of returns versus other asset classes. That discrepancy is expected to widen further, placing an even greater importance on recruiting investment teams capable of discovering and evaluating great emerging managers. While the challenge is not insurmountable, it requires the right team and a thoughtful approach. For example, we have learned of success from teams who have identified venture funds that are not household names but focus on technology investments that solve problems. Adding to the complexity of finding the best managers, the explosion in the number of SPACs (special purpose acquisition companies) being formed will challenge the best of the venture players. Sitting on billions of cash, SPACs will compete with funds to find the best deals and funds may have to pay up to participate, thus impacting their returns.
E&Fs and Family Offices Fuel the Growth
Endowments, foundations, outsourced CIOs, and family offices have been steadily increasing allocations to private investments and contributing to the explosive growth in venture capital. As noted in a Nonprofit News Special Report, the outperformance of private equity (+2%) and venture investments (+4%) versus the public markets in recent years is driving this trend, with that outperformance being far greater for the top quartile managers. Larger endowments have outperformed their smaller peers due to significant exposure to private markets. Those with more than $1 billion in assets under management averaged a 13.6% allocation to buyout and 9% to venture, compared to 6.2% and 2.2%, respectively, for all endowments. Brown University, which is overweight in venture, generated a strong fiscal 2020 return of 12%, making it the top performer in the Ivy league for the second year in a row.
More than 80% of family offices invest in venture and buyout funds, and 63% of family offices expect their venture allocation to remain the same or increase, according to a Campden Wealth survey. A survey of over 100 family offices showed an average venture allocation of 10%, split equally between direct investments and funds. When investing directly, family offices typically invest alongside other family offices or through co-investment vehicles. As our family office clients continue to increase their allocations and refine their approach, many are emphasizing the development of in-house venture investment talent.
Increasing Gender and Geographic Diversity
A notable trend is the increase in deal activity for female-founded companies. Reports show that 25% of venture investments in 2020 went to companies with at least one female founder. We have also seen this trend reflected in recent mandates as clients specifically seek gender diversity on their private investment teams. And while Silicon Valley remains the epicenter for venture investing, studies show its share of total deal value has consistently decreased over the last decade. New York and Boston continue to be leaders for FinTech and BioTech respectively, with emerging hotspots that include Austin, Atlanta, Chicago, Denver, Los Angeles, Minneapolis, and Seattle, locations where RSR has directly seen recruiting activity for venture talent.
Evaluate Talent with Wide Peripheral Vision
There is no doubt that the venture capital talent universe will become more competitive and the high demand for exceptional investment talent will continue to grow into 2021 and beyond. RSR approaches each search with wide peripheral vision in order to identify exceptional talent. One recent mandate for a prominent multi- billion-dollar foundation on the West Coast resulted in the hire of an experienced direct venture investor. Given the scarcity of venture talent, some institutions are pursuing less-seasoned candidates with high-growth potential. According to a Managing Director at a premier endowment, “Venture fund partners are younger and younger, and people allocating to these funds seem to be getting younger as well.” Our challenge, from a search and talent perspective, is to identify that next generation of “up-and-comers,” as well those who have “already arrived” and can lead an effort today. We are excited to have a front-row seat in the community and to be in a strong position to further assist our clients in the build-out of impactful investment teams.
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About Our Asset Management Practice
The Quest for Venture Talent was authored by RSR Partners’ Asset Management practice and is based on recent experience performing searches for investment professionals on behalf of a variety of clients, including private foundations, family offices, and endowments. Please contact us for more information about our experience, capabilities, and for a consultation on how we can help with your talent needs.
RSR Partners is a boutique professional services firm headquartered in Greenwich, CT, that specializes in helping Boards and CEOs with their most critical recruiting, selection, and succession needs. The firm was founded in 1994 by industry icon, Russell S. Reynolds, Jr. The firm has conducted thousands of projects for Boards and CEOs at public, private equity backed, and family-owned businesses across a range of industries including asset management, consumer goods and services, industrial, technology, and healthcare. To learn more about RSR Partners, click here.
