Very few boast a resume as illustrious and enviable as wealth management heavyweight Chris Cuffe.

The industry stalwart served as the founding chief executive of Colonial First State, the chief executive of Challenger, the chair of $90 billion industry fund UniSuper, and is currently the chair of Hearts and Minds Investments, to name a few. 

And, to top it all off (so far at any rate), he was also named as an Officer of the Order of Australia in 2017.

One is sure to pick up a valuable thing or two from someone with a resume like his, and when Koda Capital’s David Clark was lucky enough to speak to Cuffe in his podcast Inside the Rope, we listened closely. 

In this wire, I’ll take you through six important lessons the investing legend learnt throughout his career.

But first, a brief introduction to Chris Cuffe

Cuffe began his career with a degree in accounting, before nabbing a role with what now is known as KPMG (formerly Peat Marwick International, before a merger with Klynveld Main Goerdeler).

“I saw an ad in the paper when I was a young guy to go work for a start-up fund manager, which was called Sydney Fund Managers,” he told Clark.

“But I was then headhunted to head up a start-up called First State Fund Managers, which was a subsidiary of the State Bank of New South Wales.”

This was 1988, and only a handful of acquisitions later, Colonial First State as we know it today was born.

“When I started off in investment management it was really interesting. We are talking about the early 80s, it was really the start of what is now the modern funds management industry,” Cuffe said.

Investment management that could be accessed by the public was only just starting, he explained. 

"Before that time, money was managed within the mysterious bowels of life companies, and no one really knew what they did," Cuffe said. 

His tenure at CFS was followed by a stint leading annuities giant Challenger. After a few years, he departed financial services to work for Social Ventures Australia, a not-for-profit that focuses on helping charities to be more efficient and effective; namely through consultancy, impact investing, policy, and venture capital.

After a few years with SVA, Cuffe decided to explore an entirely new route. Now, he sits on various investment committees, the largest of which oversees $95 billion in FUM. He also sits on the board of various LICs, helps ultra-high-net-worth families manage their money, is the founding director and portfolio manager of Third Link Investment Managers and dedicates his remaining free time (does the man sleep?) to his philanthropic interests.

Lesson 1: Good fund managers can be "quite strange" ...

Early on, Cuffe - who said he felt entirely different from the fund managers he worked with by virtue of his accounting background - learnt that the “really good” fund managers were “quite strange people in many ways”.

“They were very focused on their trade, which you want them to be, and often they were great fund managers but pretty useless at other things and often didn’t have a lot of EQ either,” he said.

“So one thing that I have carried through my career is that I like fund managers who are a bit weird, a bit strange. 

"It doesn't mean they are bad people, they are just very focused and block out the rest of the world.”

Lesson 2: ... But the "really good" fund managers are contrarian

In the early days, funds management was very unstructured, Cuffe explained. This resulted in balanced funds becoming the most commonly used funds by the public.

“That doesn’t happen much anymore, other than in the superannuation industry," he said. 

Back in the day, as Cuffe describes it, managers used to follow the asset allocation of their competitors “up the road” rather than assessing what asset classes would generate the best returns. 

“So if a manager up the road had thirty per cent in Australian equities, you would have thirty per cent in Australian equities,” he explained.

“They all ran like a pack, so to speak. And I found over time the managers I admired and would invest client’s money with are those that think quite independently to others and aren’t worried about that sort of business risk - they are more there to honestly do the best thing by the investor.”

He also notes investors should be wary of investment managers lacking fiduciary duty.  

"You know pretty quickly whether a manager is managing money to make themselves rich, or managing the money to give the investor the best outcome," Cuffe said. 

"Now, I don't have a problem with managers making a lot of money, but I want the investor to get the best outcome and let the spoils flow to the manager secondary rather than first. But a lot of managers just raise money for the sake of it and they'll get bigger and bigger and bigger.

"I don't think you can manage a $20 billion portfolio and do better than the index. You might as well buy an index fund if that's what you want to do and pay a fraction of the cost."

That said, there are some asset classes where being large is good, like fixed interest, as this decreases credit risk, Cuffe adds. 

Lesson 3: You shouldn’t judge performance over the short-term 

Another lesson that Cuffe grasped early on - you can’t judge success in managing money in short periods of time.

“I run a fund myself, for example, and I assess the capabilities of a manager over five years, so I wouldn’t change a manager in a five year period,” he said.

“I might see some red lights going off at the three-year point if it’s something like that unless they did something really strange, I stick with them for a while because good managers have good times and bad times.”

This is - if not glaringly obvious - a departure from how we assess fund managers today, forcing them to face-off on a monthly, quarterly, and yearly basis, bastardising their value to one bad period of performance against the benchmark.  

Lesson 4: Use your industry skills to do something good

Cuffe's Third Link Growth Fund has been running since February 2012 and has returned 12.7% per annum since then. It is essentially a "fund of funds", with investment management allocated to fund managers like 1851 Capital, Aberdeen Standard, Lennox Capital Partners and Paradice Investment Management, for example. Investment management fees are donated to children's charities, typically around $250,000 a month. 

"I started it as a way to get an income stream for the charitable sector," Cuffe said. 

"I'd left Challenger by that stage, and I thought: 'Gee, I know a lot of people in this industry. I wonder if I could combine my investment skills and do something useful for charity'." 

Now it has $200 million in assets under management and around 700 investors, Cuffe said. 

"We've got an investment fund with investors and whether or not they like philanthropy, it doesn't matter," he said. 

"I give the money to charity, fund managers feel good about it cause they're helping society. Everybody's a winner. It's great." 

Lesson 5: Not all fund managers can add value

Cuffe also recommends investors carefully choose the fund managers that they select to manage their money, as not all managers can actually "add a lot of value". 

"I think the first thing to understand is there's not a lot of really talented fund managers, and as I said before, you can't judge them over a short period of time," Cuffe explained. 

"So if they get up and tell you their one-year results, I'm not interested in that. I want to see their rolling five-year results and I want to understand how they achieved those results; was it one lucky stock or was it across the portfolio?" 

Cuffe tends to prefer managers with concentrated portfolios, those with 20 holdings or less. 

"I like managers to really be active. So by that I mean, I don't want their portfolios to resemble the benchmark," he said. 

"So managers who think quite independently of the index and who genuinely think in terms of three to five years, rather than trying to guess it right for the next one month or three months or whatever." 

Lesson 6: Use a professional 

Cuffe's final lesson (or that which I will explore in this wire), is to use a professional to help guide you with your investments. 

"It's very tempting once you've been successful in business to think you've got the Midas touch," he said. 

"You get a lump of money and you think: "Oh, gee, I'll invest in that bit of private equity or I'll buy a property out at Woop Woop." And you can have plenty of accidents doing that." 

He shares that various close friends had done exactly that, blowing their hard-earned savings from decades in business on "really poor investments". 

"So find someone who can guide you, is my advice," Cuffe said. 

"I think sometimes the financial advice industry gets a bad name and, like any industry, there are some bad apples in it, but there are some really good advisers out there who can help guide you."

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