Interview Bob Homan – CIO ING

ING is a multinational banking and financial services company headquartered in Amsterdam, Netherlands. It offers a wide range of services including retail and commercial banking, asset management, and insurance. ING is known for its innovative digital banking solutions and operates in numerous countries across Europe, the Americas, and Asia. The company emphasizes sustainability and customer-centric services and holds a strong presence in the global financial sector.

What did you study and why?

I studied economics in Amsterdam, completing my studies in 1992. After that, I spent a year in the military, which was mandatory at the time. Then I unexpectedly ended up in the investment world. I had little interest in investing initially. The job market was quite weak after military service, but I eventually found a position at Postbank through an employment agency. At that time, investing for individuals was just becoming popular. During this period, there was the KPN share issuance; individual investors received a 2.5 gulden discount on the share compared to institutional parties, making it very popular to subscribe. From that moment on, individual investors started investing massively. I found the work and the subject matter immediately enjoyable and gradually pursued it further. I then worked for an asset manager to really learn what to focus on and subsequently spent nine years at Westland Utrecht. This was already a subsidiary of ING. The work was essentially the same as here: investing customers’ money. I was also the manager of a department; I had several commercial teams under me. Then, 16 years ago, I transitioned to ING. I ended up there thanks to the foundation of the securities custody company of Westland Utrecht. I was on that board, and there was also an ING representative. He mentioned he was looking for someone for a new department. That’s how I ended up there, and I’ve been doing that for 16 years now. The financial content combined with a bit of management is the most interesting combination to me.

What does a CIO do at ING?

It’s quite difficult to precisely describe what I do in a day. Generally, it looks like this: meetings, determining our investment policy, and exchanging transactions. I’m also on several committees that decide on global asset allocations (stocks vs bonds); one focuses on sectors, another on bonds. Once a month, these come together in a committee that I chair, where decisions are made. Decisions like: “We are now going to invest more in IT stocks.” So, I am very involved in the entire investment process, but also in coordination with Belgium and Luxembourg, with whom we share a department. We have a Benelux asset allocation, the same instruments (the same stocks and bonds to choose from), but we have different portfolios and different managers. I think this is very good because it creates a lot of internal competition. Secondly, it ensures that the sense of responsibility is much greater. We have now centralized ING’s investment policy into one department.

Communication is very important in this regard. Every morning, we have a meeting with the department where all private bankers in the Netherlands and the Dutch-speaking part of Belgium can dial in. We discuss all economic developments (inflation figures, etc.). With the analysts, we discuss the figures of the companies in our portfolio. And we discuss whether, based on these figures, we should maintain or sell a position.

How do these committees work together across these countries?

We have consciously chosen to keep the committees fairly neutral in terms of countries. We have 33 people in the Netherlands, just under 20 in Belgium, and only 5 in Luxembourg. It often strikes me that the Dutch have the loudest voice. You notice that there too. The good thing about the Dutch regarding investing is that we dare to make decisions. In some other countries, people always have good ideas, but then they say, “but it can always go wrong”. Yes, it can always go wrong, but that’s part of investing. But you have to dare to make a decision and go for it. When we were merging, I said I wanted to lead it. No one from Belgium or Luxembourg objected, also because they lack that direct character.

What mentality is needed to work at ING?

You need assertive characters who really have an opinion on topics, but at the same time, you must be flexible as well. So, assertive but being able to conform to the group. Sometimes I also have a preference regarding approach, but if no one agrees with me, it ultimately stops there, and I won’t push it through on my own. You need to be very assertive but able to conform once a decision is made and communicate that clearly.

What skills/values are important as a CIO at ING?

I’ve been doing this for quite a while, and what surprises me is that there are few people trying to undermine my position. We also do succession planning here, and for my role, there is actually no one. That’s quite comfortable for me. For my role as an investor, it’s important to be insightful and being able to handle uncertainties well. Unlike other bank products like mortgages, which are fully rational and clear, as an investor, you make decisions that are completely uncertain, and so are the outcomes. Many people find that difficult; those who can handle it well often lack management skills. So, there’s little competition among investors who enjoy managing. Another important factor is strong communication skills and the ability to explain things well to those around you, whether they are customers, employees, or the media. I think those qualities are important in my role.

You need assertive characters who really have an opinion on topics, but at the same time, you must be flexible as well.

How do you deal with clients when stocks are falling?

It depends on our view. If we were very positive and unexpectedly end up in a recession—a recession is actually the only time you should sell your stocks; otherwise, you should always keep them. Actually, you should always keep them because you never predict the recession. That’s the game, then a recession is predicted, and it doesn’t come. If you sell your stocks every time, you would have missed out on a lot of returns. So, maybe I’d rather experience a recession once than anticipate ten recessions that never come. During a recession, you want to be underweight in stocks so you can have a story for the client. Then the market goes down, and we do too, but we still win relatively a few percent against the benchmark because we took some measures. In 2022, for example, we had a really good year; it was a weak year for stocks due to rising interest rates. I think the markets eventually fell by about 15%, but it was more intense in between. We had an outperformance of 5% then. So, clients also go down by 10%, but you have a good story. You then tell clients not to complain because a drop is just part of it. If you can’t handle that, you should stop investing. And our advisors actually always tell this upfront. We’ve also had various crises; I started here in 2008 right during a crisis. The fun part of the investment profession is that when things are going well and your investments are increasing in value, you don’t have to work as hard, and everyone thinks you’re good. But when the market goes down, and you perform poorly relatively, you have to work very hard, and everyone thinks you’re an idiot.

The example I’m about to tell happens very often. A family member called me saying they also wanted to invest. I suggested looking at ING and choosing from several portfolios. During the COVID crisis, they called me again, emphasizing that they had lost 15%. But since the last time we spoke, the market had doubled, so how could they have lost 15%? They explained that they were looking at the peak value of the shares, which was now lower. So people look at the highest point, and anything below that is considered a loss. They had started with 100,000, and it’s now 150,000, but the peak was 180,000. So explaining and sticking firmly to your position is very important.

So to your earlier question, investing involves a lot of content, but also a lot of discussions with individual team members. And a lot of coordination with private banking, which is an important distribution channel for us. But investing involves much more. For example, sustainable legislation is changing a lot, so your portfolios have to meet certain requirements. But we also have to coordinate a lot with marketing. I also write many columns, do podcasts, and give presentations. I spend a lot of time on that too.

For my role as an investor, it’s important to be insightful and being able to handle uncertainties well.

What is expected of an analyst working under you?

An analyst needs to have analytical skills but also be a generalist. Analysts ultimately need to assess a company themselves. They need to be able to write. We expect a report on every share we own. It briefly states what the company does and why they think it’s a good investment or not. They must be strong communicators. Because if they find a stock attractive, they have to sell it to the portfolio manager. So, it’s a collaboration between the analysts and the portfolio managers. Deciding which stocks go into the portfolio is a question they ultimately deal with. You also need to be decisive, which some still find difficult. But I want to clearly hear from the analysts what they want to buy. Decisiveness is therefore very important.

How do you view CBDCs?

Positively. Cash has disappeared faster than everyone thought, especially in the Netherlands. So, I think it’s very good that an alternative is emerging. Just like in the past, when you had cash in your wallet to give someone ten euros without a bank’s intervention, you would now have a digital currency. Sometimes you might want to do things secretly. For instance, if you want to buy a gift for your wife without her seeing the money being deducted from your account, such a wallet would be very efficient. That seems fine to me, without a bank involved in the process. I’m not much of a cryptocurrency believer. I once wrote a column about how some people can’t keep up with modern technology and feel they are protecting themselves with crypto. Maybe people will also feel that way with a digital euro.

How do you view the idea of a CBDC being programmable? For example, with built-in incentives like money with an expiration date or interest rates that vary per individual?

Yes, you could use such tricks, but I don’t think it’s desirable. I see it more as a replacement for cash. Last week there was a payment failure, and many supermarket customers had to be sent home. Well, if everyone had such a wallet, you wouldn’t have that problem, as you would have an alternative. So, I see more practical applications rather than the central bank trying to implement policies that way. In my view, policy should be conducted through interest rates, and no interest should be given on a CBDC wallet. That’s what bank accounts are for and what the credit system is based on. You should really see this as cash, at least that’s how I view it.

How do you see new emerging fintech companies like Revolut and Bunq? Do you see them as competition or do they strengthen the position of traditional banks?

I think they coexist quite well. Ten years ago, I thought, “uh-oh,” because a bank always has profitable and less profitable segments. And with fintech, the segment with good margins is where the competition is. So you can do certain segments cheaper because that’s the high-margin part that subsidizes the rest. Therefore, I thought, “uh-oh,” this could really cause a revolution. Now, ten years later, I see it happening only gradually, and the fintechs that existed or still exist now look more and more like a bank. This is probably due to the regulations that have been introduced. The difference is not enormous, and we now do the same things as a fintech. So no, I find the threat to banks smaller than I originally thought. I think banks can coexist quite well with fintechs, especially at the product level. Nowadays, there are platforms for lending, etc., and I think it’s good that there’s also some competition, as there are only a limited number of banks in the Netherlands. It keeps the competitive field better, but I don’t see it as a real threat. It perhaps keeps banks sharp regarding the costs.

What is your opinion on stock picking vs. ETF investing for retail investors? And is there a middle ground like investing in sector ETFs?

If I were a retail investor, I think I would rather go for ETFs because stock picking is quite difficult. But I must say, as we do it here, we do a combination. And generally, we try to do as much stock picking as possible. In our portfolios, we do have some ETFs, such as a standard bond ETF and an equity ETF, to quickly adjust asset allocation. So if we want to be overweight in stocks, we sell the bond ETF and don’t have to calculate which stocks to buy, allowing us to switch quickly. So we always have a percentage of ETFs. We can also diversify over American, European, and some emerging markets stocks ourselves. But most of the emerging markets stocks, Japanese, and small caps, we can’t stock pick ourselves as we have too few analysts for that. So we buy those either through active funds (where a manager thinks they can achieve outperformance) or an ETF if we want a position in that market.

We are long-only investors, and the way we are structured doesn’t allow us to go short. We never go short, and we don’t hedge through options because, in my view, that only costs money. Recently, we have shown outperformance. During the first ten years I was here, this was mainly due to asset allocation (being well-positioned with stocks versus bonds) and being in the right sectors. Especially in IT, this worked out well in the first ten years. But in recent years, we earn more from stock selection than asset allocation. And I think that’s because the dispersion between stocks was very low after the financial crisis. Everything moved up or down together, with little distinction between sectors and stocks. But that dispersion is now enormous. One stock can go up by 20%, and the next can go down by 20%. In that case, there is more to be earned as a stock picker than when everything rises by 5%. Of course, there were always differences, and there are statistics on how large the dispersion is between stocks, but that dispersion is now very large. So there is currently an opportunity for stock pickers to do well.

Recently, the “Magnificent 7” have outperformed the S&P 500, what is your view on this?

I think that’s why many active investors lag behind the benchmark. Because in the index, the “Magnificent 7” already have a very large weighting. So if you make a new investment, you choose stocks outside the Magnificent 7. Due to the thought, “they have already risen by 30%”, you choose other stocks with a smaller weighting in the benchmark. You then want those in your portfolio, but you automatically have to underweight something. And then they often choose something from the Magnificent 7, which you shouldn’t do. We are still overweight in the Magnificent 7, even now, despite their heavy weighting in the index. Except for Tesla, which we don’t have, that was quite annoying for a while last year. This year we benefited greatly. In the sustainable portfolio, we have 4.5% of our equity portfolio in Nvidia. In the sustainable benchmark, the weighting is 0%. That stock has more than doubled this year, so you earn relatively enormous money on that. I recently wrote a column about this, stating that it almost seems like a hedge fund, the way you run it. Compared to your benchmark, if you have stocks like Nvidia that are so big, and if you don’t have them, or if you overweight them, you can create an enormous difference. But I find that really fun. Although I must say, I am better at selecting the asset allocation than individual stock picking. But I gladly leave that to others.

How does ING distinguish itself as an employer in the sector?

As I now see ING, I saw it even before I worked here. ING has a more dynamic image. It is a bank for everyone; we have everything from private banking to opening an account for a refugee. I may be biased, but I think we project that and that it’s true. We were also ahead in technology, but now everyone has a nice app. Additionally, we have a more lenient culture compared to others.

Do you have any tips for students?

Try to become good at something. Many students entering a company want to take on responsibility immediately. They expect to get that responsibility after a year, but sometimes it doesn’t happen, and you need a bit of patience. Simultaneously, with that patience, I say, do it in a field where you are good. But do switch employers once or from time to time. You can ask for a raise every year, but the real steps come when you switch jobs. Most people I know who earn the most have not switched from a totally different department such as marketing to something else, but they have chosen a clear specialty. I think it’s also nice if you can be good at something where you can distinguish yourself from your fellow students and build on that.

What I was good at when I was younger was presenting to groups. When I was younger, that wasn’t taught at the university. There were very few people who were somewhat handy at it. Now students do learn that, but I had found something like that back then. The nice thing is, if you can present to a group, people attribute all sorts of qualities to you that don’t relate to that at all, but they think you are also a good manager and give you that chance. Maybe good presenting is now a well-trodden path, but then find something else where you can distinguish yourself that really suits your character because then you’ll endure it the longest. So, something that intrinsically motivates you and where you are good at, if that lies close together, then I think you will do very well.