Chief Investment Officers Vs. Fund Managers in Mutual Funds

It is often the practice in the corporate and financial domains to give executives fancy titles in order they are able to attract the attention of their clients. In the investment world, there is often some confusion about whether chief investment officers (CIOs) perform better than fund managers. Their tasks seem to merge but the overall impression is that CIOs are in total control. The article helps distinguish between the two with a statistical study 

Mutual funds have swiftly emerged as a vital platform for investors in India seeking portfolio diversification and expert management. The collaborative efforts of the industry facilitator, Association of Mutual Funds in India (AMFI), and the proactive regulatory oversight by SEBI have instilled confidence among investors regarding mutual fund investments in the country. Given the multitude of mutual fund options available, selecting the best fund becomes a critical decision.[EasyDNNnews:PaidContentStart]

Among the various factors that are considered before selecting a fund, equally significant is grasping the dynamics of the team steering the fund’s performance. When it comes to fund management, two terms often surface: Chief Investment Officer (CIO) and Fund Manager. While both play significant roles, their responsibilities and influence on a fund’s performance can differ. This is due to the role of CIOs and their distinctive approach to managing funds compared to other fund managers. Let’s navigate the intricacies of this dynamic scenario. 

Difference between CIO and Fund Manager 

The role of a CIO stands out as pivotal in steering the investment strategies and overall direction of a fund. The distinction between funds managed by a CIO versus those led by fund managers who aren’t CIOs reflects differing approaches, oversight levels, and impacts on fund performances. Think of the CIO as the captain of a mutual fund ship. They hold the ultimate responsibility for setting the investment strategy, overseeing risk management, and guiding the overall portfolio construction. Their expertise lies in:

1. Big-Picture Vision — CIOs chart the strategic course of the fund, defining its investment philosophy, asset allocation, and risk tolerance. They analyse market trends, identify long-term growth opportunities, and ensure the fund aligns with its stated objectives.
2. Team Leadership — CIOs lead and mentor the team of fund managers, providing guidance, expertise, and a consistent investment framework. They ensure all analysts and managers adhere to the defined strategy and contribute effectively to the team’s success.
3. Investor Communication — CIOs often act as the public face of the fund, communicating its investment strategy and performance to investors. They build trust and confidence by explaining the rationale behind investment decisions and addressing market concerns. 

The fund managers are the ones who navigate through the waters. While the CIO sets the course, individual fund managers act as skilled navigators, executing the defined strategy within their specific mandate. Their responsibilities may include the following, among others:

■ Security Selection — Fund managers conduct in-depth research to identify promising investment opportunities within their allotted asset class or sector. They analyse financial statements, assess company fundamentals, and make informed decisions on buying and selling securities.
■ Portfolio Construction — Within the broader guidelines set by the CIO, fund managers build and manage individual portfolios, ensuring compliance with risk parameters and diversification guidelines. They actively monitor the performance of their holdings and make adjustments as needed.
■ Performance Reporting — Fund managers provide regular reports to the CIO and the investment team, detailing their portfolio’s performance, individual security analysis, and rationale for investment decisions. 

Understanding the Difference

A CIO plays a central role in setting the broader investment philosophy and strategic direction of a fund house. Their responsibilities extend beyond managing a single fund; they often oversee multiple funds or an entire suite of investment products. With a comprehensive understanding of market trends, risk management, and fund objectives, CIOs craft overarching investment strategies aligned with the fund house’s goals. These strategies are designed to weather market volatility, seize opportunities, and manage risk across various funds under their purview. 

Another notable distinction lies in the depth of research and analysis that CIOs bring to the table. Their multifaceted role demands a deeper understanding of macroeconomic trends, industry dynamics, geopolitical influences, and emerging market developments. This holistic perspective enables them to navigate complex market environments and make informed decisions that impact the firm’s entire portfolio. 

Does it Matter Who Manages the Fund?

Both CIOs and fund managers play crucial roles in a fund’s success. However, the CIO’s influence on the fund’s performance can be more pronounced due to their strategic direction and oversight. To understand if there is any difference in the return generated by the funds being managed by fund managers or CIOs, we conducted an empirical study of the returns of equity-dedicated funds. The reason for selecting equity-dedicated funds is that they are actively managed funds. 

Initially, our exploration encompassed approximately 750 equity funds. Our focus shifted exclusively to direct plans, aiming to eliminate the impact of the fund house’s cost structure and minimising the significance of expense ratios. Consequently, index funds, which operate with minimal oversight as they are passively managed, along with exchangetraded funds (ETFs), were omitted from consideration. This refining process whittled down the selection to about 500 funds. Subsequently, our attention pivoted to the top 22 fund houses, gauged by their average assets under management (AUM), collectively constituting about 95 per cent of the industry’s total AUM as of September 2023. 

As a result, we narrowed our scope to 400 equity-focused funds exclusively available in the ‘direct’ plan. Further refining our analysis, we categorised funds based on their management structures. Funds solely managed by fund managers were set apart from those overseen directly by the CIO or where the CIO played a direct or indirect role in management. To qualify as a CIO-managed fund, we set a threshold of at least one year of CIO involvement in fund management. This stratification allowed us to distinguish between funds primarily driven by individual fund managers and those benefiting from CIO guidance or joint management scenarios involving the CIO. 

Number of Funds

Among the 400 funds scrutinised, approximately 92 per cent are managed by fund managers, leaving a mere 8 per cent under the direct purview of CIOs. When considering the assets under management (AUM), the funds handled by CIOs represent an even smaller fraction, accounting for only 6 per cent of the total equity assets managed. Consequently, whether gauged by the number of funds or the size of assets managed, the CIO-led segment does not wield considerable significance in comparison to the broader landscape of funds predominantly managed by fund managers. 

The Return Difference

The table presents the average returns achieved by funds managed by CIOs compared to those managed by fund managers across varying timeframes. Over a five-year horizon, CIO-managed funds averaged returns of 20.40 per cent, slightly outperforming the fund manager-led funds, which garnered an average return of 18.65 per cent. This trend continues over a three-year period, with CIO-led funds boasting an average return of 25.49 per cent against fund manager-led funds’ 21.30 per cent. Notably, within the one-year timeframe, both categories displayed slightly closer results, but CIO-managed funds maintained a lead, registering an average return of 21.59 per cent compared to the fund manager-led funds’ 19.37 per cent. 

While the differences in returns are discernible across all the periods, the disparity appears to widen over longer durations, indicating potentially more effective strategies or decisionmaking within CIO-managed funds. These figures suggest a consistent trend wherein CIO-led funds showcase marginally higher returns, particularly over extended investment periods, hinting at a potential edge in performance attributed to CIO oversight and strategic involvement. 

Taking a deeper dive, we sought to uncover the origins of return discrepancies within different equity categories, focusing solely on one-year average performance for our analysis. Delving into the average returns of funds overseen by CIOs compared to those managed by fund managers across the various equity categories reveals intriguing insights. Notably, CIO-led funds displayed noteworthy superiority in categories such as Small-Cap and multi-cap-dedicated equity funds. In the small-cap and multi-cap segments, CIOs delivered returns of 28.31 per cent and 25.31 per cent, respectively, surpassing the 24.61 per cent and 21.90 per cent of fund managers. 

However, these were the only categories where we saw a substantial lead by CIO-led funds compared to fund managermanaged funds. For example, CIO-managed infrastructure funds showcased an average return of 25.29 per cent, contrasting with 29.94 per cent by fund managers. Similarly, in certain categories like Large-Cap and thematic (ESG and ELSS), fund managers exhibited comparable or marginally better performance, hinting at the inconsistency of CIO-led funds’ outperformance across all the segments. While CIO-led funds demonstrated stronger returns in specific areas, there were some categories where the fund manger-led funds performed better. 

The disparity in average returns might not fully elucidate the relative performance of funds within their respective categories. To delve deeper, we computed the percentile ranking of each fund within its category, solely focusing on one-year returns. Surprisingly, the average ranking didn’t exhibit substantial differences between funds managed by CIOs versus those overseen by fund managers. Fund manager-managed funds showcased slightly better percentile rankings in this scenario. However, the margin between the percentiles of the two groups wasn’t notably significant. Despite the fund manager-led funds displaying a slightly higher average ranking, the minimal difference in percentiles implies a comparable performance between the two categories, suggesting that their relative standings within their respective categories were relatively close. 



While fund managers navigate the daily market turbulence, CIOs chart the long-term course. Their vision steers the fund's philosophy, ensuring each manager's tactics align with the bigger picture. To truly assess a fund's potential, scrutinize the entire team. A seasoned CIO sets the sails, but skilled, aligned managers are crucial in navigating the journey towards investment success. 

Choosing the Right

Fund Choosing the right mutual fund can feel like navigating a maze. Often, the hype tends one to fixate on CIOs or fund managers. However, focusing solely on them carries the risk of overlooking other crucial aspects. Our research reveals a nuanced truth: While CIO-managed funds may show a slight edge, it’s statistically weak to base your decision solely on that. Instead, broaden your scope and prioritise consistency, aligned philosophies, and robust risk management. Evaluate both the CIO’s track record and the individual fund manager’s expertise. Scrutinize their investment philosophy, risk approach, and past performance to find a good fit for your goals and risk tolerance. Don’t be blinded by fancy titles. 

Consider consistent performance over time. A fund’s ability to weather market storms and demonstrate steady growth speaks volumes, regardless of management titles. A fund’s investment philosophy is its compass. Ensure it aligns with your own values and goals. Transparency and a clear strategy are the keys to good investment. Don’t get caught in the CIO spotlight. Focus on a fund’s holistic picture: consistent performance, a well-defined philosophy aligned with your values, and robust risk management practices. This comprehensive approach empowers you to make informed, prudent investment decisions and navigate the complex world of mutual funds with confidence. 

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