Kathy Lutito, Former Lumen Technologies CIOKathyLutito,FormerLumenTechnologiesCIO

After nearly three decades of seemingly never-ending change at her company, Kathy Lutito made a big change herself: she is moving on.

The long-time chief investment officer of Lumen Technologies’ CenturyLink Investment Management ended a remarkable run in May, leaving behind an impressive track record that spanned a bevy of mergers, acquisitions, divestments and corporate name changes. 

We spoke with Lutito about her role as CIO, the market’s resiliency, diversity within the ranks of asset management, and her plans for the future.

Congratulations on your recent retirement. Let’s take it back full circle to when you first began – can you talk about how you got started in the industry?

I was fortunate because while I was getting my undergrad degree, I did an internship at a small local bank and that got me interested in investing. I was doing a rotation around the bank, and worked with the treasurer who did the investing of fed funds overnight. At that time interest rates were about 9-10% and it would turn into real money overnight. I’m a curious person so when people saw my interest in investing, they introduced me to more people in the industry in Denver, including the equity trader at Janus Funds. After graduating, and due to the connection at Janus Funds, I landed an assistant equity trading position at Colorado Public Employees Retirement Association and that introduced me into the institutional investing space. After the crash of ’87, trading slowed so I started helping the equity analysts and eventually recommended stocks to add to the portfolio. I was also asked to help in the fixed income part of the portfolio. So, my first job gave me an incredible amount of exposure to all aspects of institutional portfolio management. Looking back, I feel so fortunate to have a career in the institutional investment field as the industry is so dynamic and I believe it attracts incredibly talented and creative people – the best and the brightest. There is no limit to what you can learn. I am so thankful for the opportunities that came my way.

As you look back on your career, are there one or two developments that stand out as the most memorable as an investor?

There have been a lot, but I would highlight two. The Global Financial Crisis (GFC) was an incredible time to manage through because it was so widespread. It had a huge impact on how the banking system worked, which also impacted how capital moved through the economy. We learned a lot about flawed incentives in the system, leverage and many new regulations came out of it that we’ve had to incorporate into our analysis. And the other one of course is Covid, which for most of us was a totally unprecedented event. It was challenging to think through as it had a very personal component as well as huge impact on the economy, financial markets etc. It’s been remarkable to watch the shocks to the system like the impacts on supply chains, real estate, how business gets done, and people rethinking their personal lives and priorities, and to witness how we have worked through these widespread shocks to the system. Both were incredibly frightening times, in the moment, but with big challenges there are also big opportunities. Never let a good crisis go to waste!

Can you offer your views on the resiliency of financial markets of late, and what we might expect in the second half of the year?

I have been waiting for rates to rise for a long time, but I was surprised that given the reset in rates in 2022 that we didn’t have more things break. We did have the regional bank issue, but it seemed to get somewhat resolved without much contagion. The real estate market is one where there still could be some trouble, but it takes time for that area to react to the rising rates, and it may be just fine. We may be lulled into complacency a bit now as the stock indices seem to be doing so well, thanks to the tech exposure, but the broader market seems to be seeing some margin compression. Overall, the economy still is growing nicely, and inflation seems manageable given the growth. I think we’ll probably remain resilient for a while longer but at some point, we will go through another cycle and see some weakness, and perhaps the tech area may roll over a bit. I am thinking next year may be more challenging for returns, after we get the election behind us.

Talk about your thoughts on the importance of active vs. passive in such a volatile environment.

I’m a big believer in active management, especially during higher volatility times, and I think we will continue to see increased volatility given higher rates. In my opinion, we need to be very selective in where we choose that active management, and how much we pay for it. But as a fiduciary we need to be conscious of the risk that could be inherent in passive strategies right now given the concentration in the indices – we all know what happened during the dot-com period. Active management gives us another diversifying factor within our investment portfolios, and it’s more effective to do when you can find managers with the actual expertise to do it, and that’s when you want to lean into it. For instance, large-cap equities is a tough place to add value, but if you go to a global equity portfolio, those managers will have a lot more tools in their toolbox to outperform.

AI has been one of the big stories of the last year or so. Any thoughts on the role of that in the investment management business?

I think the evolution of AI technology is incredibly exciting. Pushing it to a broader user set that’s bigger than just people working in the tech field will really see it come to fruition in many ways. At Lumen we didn’t have specifically targeted AI investments, but as a company we were early signers on to Microsoft’s Copilot and it is fun to experiment with. It’s mind boggling the efficiency it can bring, but it’s also a lot to learn. I am a big believer in embracing new technologies and learning as much as you can because if we don’t, we will be left behind. At a basic level I think it will improve everyone’s efficiency for the mundane tasks and allow us to use our brain power for higher level thinking. It’s also going to impact how we structure and run businesses. From an investing perspective, our challenge is to identify the real leaders in the AI area, what companies will be the highest beneficiaries of the technology, and there will be a lot of trickle-down players and beneficiaries.

Diversity within the ranks of asset management is an important consideration at PGIM, and throughout the industry overall. Can you offer your views on the role diversity played in your role as a CIO, and the evolution you experienced over the years?

I’m a huge believer in the benefits of diverse teams and have strong conviction that diverse teams lead to better outcomes. But it must be about more than just meeting some metric regarding who is sitting around the table. There’s a saying that diversity is asking someone who is different than you to the dance, but inclusion is actually dancing with them. Where the rubber meets the road is what happens in the room – do we really welcome and invite the different viewpoints in the decision-making process? That concept is hard to measure, but if a team is successful in really getting diverse inputs in the process, the outcomes will be more successful. The benefits will be apparent in the long-term performance of teams and companies and will differentiate the winners and losers. Overall, we have seen a lot of improvement in the diversity of teams during my years in the industry, but it needs to be embraced even more broadly. The entire team is responsible to not just get diversity around the table, but make sure the inclusion part happens. Lots of times, especially in the US, I believe we want to do things very quickly, and having people who think just like you allow it to happen. But real inclusion requires that we slow down and hear other people’s opinions. And I do want to say that, in my opinion, PGIM has been a real industry leader on this front for many years, and it is shown in PGIM’s long-term success. 

What was the biggest challenge in your role?

There were plenty of crazy market environments that were challenging but they were challenging in a good way. I love the investment challenge as it’s so intellectually engaging and fun to navigate. Even though it can be stressful, I view it as good stress. I also had such a strong and talented team that volatile markets didn’t really keep me up at night. The biggest challenge for me, as a CIO, is that you wear many hats and you have so many other responsibilities besides the investment portfolio – the team, the needs of the company, communications, company leadership – and it’s a very complex role. When you’re in that position at a corporate entity you also are a senior executive of the company, and you have to always make sure you’re the leader you need to be. I took my role very seriously, and I loved every minute of it, but it was an “always on” type role for me.

Now that you have stepped away from the day-to-day grind, what kinds of activities or hobbies will you be spending your free time on?

The reason I decided to move on from the CIO role is that I have a lot of interests that I’d like to pursue, and I need more time to do it. I recently spent time in Spain, walking the El Camino trail to Santiago de Compostela, which I highly recommend for anyone in transition. I’m still connected to the investment industry through board work, advising work and volunteer committees, which I love. I am looking forward to more time with family and friends, adventurous travel, fun activities like golfing, hiking and being open to new challenges and learning opportunities. Really looking forward to my “next chapter.”