Comings and goings: John Skjervem, Mark Wiseman, Rob Blandford, Vicki Fuller
Pure Performance: our perspective on corporate and non-profit returns:
John Maynard Keynes: The First Great Endowment Manager:
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Comings and goings:
John Skjervem: Portfolio management vs. Portland politics
As we go to press (no actual presses involved, we just like that phrase), still another Chicago MBA has landed still another big job.
John Skjervem, class of ’91, has been appointed chief investment officer at the Oregon State Treasury’s investment division. This makes him effectively the CIO of PERF, the state’s $58 billion pension fund. He takes over in November.
The base pay for the position, as of 2010, was $265 thousand, plus a performance bonus opportunity.
Mr. Skjervem was recruited from Northern Trust Corp., where he was senior chief investment officer of their western region, stationed in L.A (apparently, a SCIO outranks a mere CIO!).
Oregon lost their previous CIO, Ron Schmitz, just about a year ago. Although his team had been generating excellent investment performance (a 6.7 percent return over 2001-2010), he and several senior officers came under fire from Portland’s populist press for alleged extravagance in their travel-and-entertainment accounts.
As far as we could make out, Mr. Schmitz and his people were abiding by the rules then in force and, in the end, the headline-hunting legislative Ethics Committee churlishly conceded that they couldn’t actually charge the officers with any violations due to “extenuating circumstances.” Those “circumstances” were that they were following Treasury policies and advice from the state Attorney General’s office. But those guidelines, huffed the ethicists were “flawed.” Whatever.
The ethicists got their headlines, but also succeeded in losing a good CIO. Mr. Schmitz exited Oregon and was hired as the new CIO of the Virginia Retirement System in Richmond, shortly afterward.
Mr. Skjervem, age 50, was born in Los Angeles and earned a BA in economics from UC Santa Barbara. After working a few years in L.A., he headed to Chicago for his MBA (where he also met his wife Jill, a fellow Chicago grad).
He was hired by Northern Trust and spent twenty years working for them in southern California and Chicago, finally becoming the top investment exec for NT’s western region, with broad responsibility for asset allocation and portfolio construction.
Mr. Skjervem appears to be highly-qualified as a portfolio manager, and we congratulate him on his appointment. We just hope he’s ready to deal with the Portland politics.
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Mark Wiseman: A big job with a big paycheck in Toronto:
A big (and well-compensated) job has just turned over up in Toronto. The Canadian Pension Plan Investment Board, which is the largest public investor in Canada with US$167 billion AUM, has a new chief.
Mark Wiseman, Exec VP-Investments, moved up to CEO in July. On the current org chart all the senior investment managers report directly to Mr. Wiseman, so he is now effectively the chief investment officer, as well. CEO David Denison, after seven years on the job, is retiring.
For FY 2012, Mr. Denison had total compensation of C$3,210,285, including a base salary of C$515,000, bonuses totaling C$2,624,400.
Mr. Wiseman, in his previous position, earned C$ 3,018,083 in the same period.
These are impressive comp numbers compared to even the biggest U.S. public pensions. Anne Stausboll, the CEO of CalPERS, made around $380,000 in FY 2011, including a $96,638 bonus. In fact the pay for CPP execs is comparable to the heads of the Harvard and Yale endowments, who have recently pulled down between three and four million annually, including bonuses.
Unlike their U.S. peers, the big Canadian funds tend to run their portfolios internally and invest directly. Their execs are well-paid, but there is a lot less money flowing out as fees to external managers.
Of the 341 investment professionals at CPP, 112 are working on private investments. Over the past six years, those private investments have added a net $3.8 billion in value to the total portfolio, while public investments have added only $0.5 billion.
That’s from an allocation of only about 16.4 percent – about $27 billion out of the current $167 billion.
With those numbers in mind, it’s obvious why Mr. Wiseman, who ran the private-market team until a year ago, was a top candidate for CEO. And, his promotion to VP – Investments last year, putting the whole portfolio under his hand, was obviously the fruit of a longstanding, systematic internal succession plan. Other boards should take note: this is how succession planning is supposed to work.
Mr. Wiseman got his undergraduate degree from Queens College in Kingston, Ontario, and has practiced law in New York and Paris, but has now settled down as a Torontonian. He earned his LLB and MBA from University of Toronto, and was head of private equity investments at Ontario Teachers Private Capital, also in Toronto, from 2002 to 2005.
The retiring CEO, Mr. Denison, said he’s looking forward to joining corporate boards, which he was not allowed to do in his current role. And, since he’s retiring at age 60, he’s still ready to take on some challenges.
“A lot of boards have age limits of 70 years for retirement; to allow for a meaningful period of time to serve on a board, you can’t leave it too long,” he said. He’s also confident in his successor. “He’s someone who is ready. He doesn’t need any more seasoning or time to develop into a CEO.”
Readers who scroll down to our excellent Pure Performance report below can see how the major Canadian public funds stacked up against their Yankee counterparts. CPP, for instance, returned 3.8 percent in the five years 2007-2011. Ontario Teachers did somewhat better, with 4.2 percent in the same period.
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Rob Blandford: Pulavarti’s Understudy is the new Spider-man:
When I interviewed Spider Management Company CIO Srinivas Pulavarti back in July, his departure from Richmond had been announced, but his destination was unknown. A few weeks later, the UCLA Foundation said that Mr. Pulavarti had been recruited for their open CIO slot.
Then, before that UCLA press release had even cooled, Spider announced that Srini’s second-in-command, Rob Blandford, would step up to the President-and-CIO job in Richmond. Mr. Blandford had been aboard since 1999 as director of investments.
The most recent available figure for Mr. Pulavarti’s total compensation (two years old) is about $830 thousand, and we expect Mr. Blandford to get a similar package.
I’m given to understand that Mr. Pulavarti highly recommended Mr. Blandford for the job. And, apparently all the powers that be, including Spider CEO Steve Kneeley, the Spider board, and the investment of committee of Spider’s parent, the University of Richmond, concurred. No outside search was deemed necessary.
Mr. Pulavarti, who had been both president and CIO at Spider, reported directly to the board until a new CEO slot was created in March. Steve Kneeley filled that new position and became Mr. Pulavarti’s boss.
Spider is a $3 billion management company which acts as an outsourced CIO for some 20 non-profit entities in addition to the U. Richmond’s $1.8 billion endowment. The official story is that they needed someone to ride herd on its expanding outsourcing business and tend to all the clients so that Mr. Pulavarti could concentrate on the portfolio. This may be true, but it’s interesting that Mr. Pulavarti announced his departure shortly after Mr. Kneeley’s arrival, and landed at another fund of almost exactly the same size.
By our calculations, Mr. Pulavarti’s team generated a 7.7 percent return in the five years 2006-2010. We ranked him second in performance only to Narv Narvekar at the Columbia endowment among highly compensated nonprofit CIOs – a very close second. And he also stood very near the top of our infamousPerformance for Pay rankings. In other words, he not only provided great returns, but was a relative bargain for his employers.
With the promotion of Mr. Blandford, both of the senior Spider-men are now University of Richmond alums.
In addition to his BA from University of Richmond, Mr. Blandford earned an MBA from Virginia Commonwealth University, also in Richmond, and previously worked as a senior investment officer atVirginia Retirement System in, of course, Richmond. As Mr. Kneeley correctly noted in the hiring announcement, “Rob is a true Richmonder.”
His attachment to his town is well established; it only remains to be seen whether he can match the outstanding record of Srini Pulavarti as an investor.
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Vicki Fuller: A Chicago grad to helm third-largest U.S. pension:
On August 30, Vicki Fuller settled into her new office in Albany as chief investment officer of New York State’s Common Retirement Fund. Like her predecessor Raudline Etienne, she will have the formal title of Deputy Comptroller and make about $300 thousand base pay. And, I’m pleased to note, she’s a University of Chicago MBA!
State Comptroller Tom DiNapoli, the sole trustee for the CRF, hired Korn/Ferry to do the search, and they found her close to home, working in Manhattan for asset manager AllianceBernstein. As a senior VP and managing director for public funds she had been representing AB’s investment products to public pensions.
After earning her Chicago MBA, Ms. Fuller trained at Morgan Stanley, followed by a stint as a rating officer with Standard & Poor’s. Along the way she also picked up a CPA credential.
She landed a job as a high-yield fixed-income portfolio manager at Equitable Capital Management and continued in that specialty when Equitable was acquired by Alliance Capital in 1993. Alliance merged into AllianceBernstein in 2000, and Ms. Fuller was promoted to the senior VP/managing director position in 2006.
When the hire was announced in July, Mr. DiNapoli noted that Ms. Fuller “…has an impeccable reputation and understands my commitment to operating the Fund with the utmost ethics and transparency.”
Given the recent history of the CRF, these remarks were more than perfunctory.
Mr. DiNapoli’s immediate predecessor as state Comptroller, Alan Hevesi, is currently serving 1 to 4 years in prison after pleading guilty to corruption charges surrounding a “pay to play” scheme at the CRF.
David Loglisci, who was the fund’s chief investment officer under Mr. Hevesi, has also pled guilty to criminal charges, but is expected to receive a light sentence for cooperating with state prosecutors, possibly avoiding imprisonment. His sentencing, after several delays, is now scheduled for September 28.
Despite all this recent unpleasantness, the CRF’s investment performance has been reasonably good. They ended their 2012 fiscal year on March 31 with a return of 5.96 percent and AUM of $150.3 billion.
Marjorie Tsang, who served as interim CIO, deserves some credit for that recent performance. Although she didn’t get the top job, the results of CRF’s real estate portfolio, which she has run for years, have been outstanding.
As you can see in our illuminating Pure Performance report below, CRF had a not-bad 4.2 percent annualized five-year return through 2011. They out-earned their larger California peers, CalPERS and CalSTRS, who posted 3.4 and 3.8 percent returns respectively in the same period.
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Pure Performance: our perspective on corporate and non-profit returns:
Why Pure Performance?
We’re retained by the boards of institutional money managers to help them find chief investment officers and other senior people, so we naturally focus on the pay and performance of individuals. In past newsletters we’ve issued research that attempted to quantify some of those matters, including our infamous Performance-for-Pay study last year.
But this month we want to look solely at the investment performance of the major corporate pensions and non-profit funds. We call it Pure Performance. The results are revealing and, in some cases, surprising.
We’ve still attached the names of the CIOs, so praise or blame can be cast on the right individuals, but we’re not including compensation in our analysis.
We wanted to come up with a clear, head-to-head ranking of these big investors, calibrated by both return and risk. If we had just listed, say, the 50 largest funds by AUM, then the list would be top-heavy with public pensions. Instead, we’re looking at the ten largest in each group.
For the U.S., we’ve put together investment performance data for the ten biggest public pensions, corporate pensions, endowments, and private foundations. We’ve also added the five largest public funds in Canada, because we think there are interesting things going on up in the Great White North.
For all 45 funds we calculated a five-year annualized return for 2007-2011. Then we obtained the standard deviations and Sharpe ratios to get a sense of their risk-adjusted performance.
These funds have different institutional missions, different legal and regulatory settings, and face different political and cultural constraints. Some of their execs, and even some of our readers, may object that they just aren’t comparable and shouldn’t be lumped together.
We respectfully disagree.
In Roman mythology there was a god called Janus. Janus had two faces: one facing forward, one back. Old Janus was a very hard guy to sneak up on.
The managers of these funds are Janus-like. One set of eyes has to focus inward on the peculiar needs of a specific institution. But, for all investment managers, the other view is the same: the world market for investable assets.
The investment committee and its executive arm, the chief investment officer, are charged with balancing risk and return. Whether they succeed, and by how much, can be objectively measured. And, we will fearlessly assert that higher risk-adjusted returns are always better than lower ones.
Whether those returns are being used to build schools in Africa for Mr. Gates, support retired auto workers for Ford, or keep churning out PhDs in post-modern bafflegab in New Haven, is somebody else’s worry.
A slight hitch:
We hoped that we could offer readers a clean ranking of all these diverse funds, from high to low, based on both absolute and risk-adjusted performance over the past five years.
But, as we worked through the data, we realized that the different fiscal years presented a problem. Some close their books on June 30 (including most endowments and public pensions). Others use a December 30 fiscal year (including most corporate pensions). And there were a handful of odd-men-out using March 31, August 31, or September 30 years.
We think a five-year span is most appropriate for judging investment performance of an individual manager or team. But, unfortunately, it’s not long enough to wash out all the timing differences.
For a bond investor, it wouldn’t much matter which FY he used. The Barclay’s Aggregate bond index returned about 6.5 percent whether your five years ended in June or December of 2011.
But, for equity investors, it matters. An investor holding just the S&P 500 index would have an annualized return of 2.9 percent for the five years ending June 30, 2011. But he would have had a negative return of -0.2 percent for the five years ending December 31, 2011.
That’s a big difference. And some of the funds we’re looking at have huge equity exposures.
So, we can’t just blithely pile these apples and oranges together because the late-filers would be unfairly penalized and the early-filers unfairly boosted in the relative rankings.
What to do?
In theory, the returns could be re-calculated on some common-denominator basis by examining quarterly statements. But that would be a lot of extra work for our research staff: us. And, some of the funds we want to look at, including most foundations, don’t file quarterly reports at all.
So, we divided our list into two groups. The first consists of June FYs (plus a few in March). The second contains all the December FYs (plus a few in September or August).
This isn’t a perfect solution, but it lets us more fairly rank performance over the same (or almost the same) five-year periods. Sorry for this long excursus, but we wanted readers to understand why we have the “extra” charts.
First, we present the overall ranking by absolute return, with Sharpe ratios also noted. Fiscal years are cited for each fund. These rankings, as explained above, are problematic and should be taken with a grain of salt.
Then we have the separate charts for the June and December FYs, with their more defensible rankings. On each we also include a line representing returns for a 60/40 index fund for that period. This is a plain-vanilla index based on the S&P 500 and Barclay’s Aggregate bond indexes.
With the index as reference we can see at a glance who was beating the public markets and who wasn’t. Readers will note that the 60/40 index returned 5.0 percent for the five years ending June 30, but just 3.2 percent for the period ending December 30.
N.B.: These various funds, of course, use their own custom benchmarks, tuned to their specific asset allocations and objectives. Our simple, one-size-fits-all, 60/40 index is only intended to give a rough notion of how these funds performed relative to the public markets. Readers can consult the funds’ published reports to see what standards they measure themselves against.
Further below we have some more sub-tables, and some discussion of what it all means. We found a few surprises.
Now: To the charts! [Please click on the space if you do not see the chart. They should appear.]
First: all 45 funds, ranked by annualized return for their respective fiscal years:
Rnk |
Fund/Investment Authority 5 year pure return |
Year end |
2007-11 % rtn |
2007-11 Sharpe |
AUM $bn |
Chief Investment Officer |
1 |
Columbia U/ CIMC |
(30Jun) |
8.8 |
0.41 |
$7.8 |
Narvekar, Nirval (FY07-11) |
2 |
U of Michigan |
(30Jun) |
7.3 |
0.27 |
$7.8 |
Lundberg, Erik (FY07-11) |
3 |
Boeing |
(31Dec) |
6.3 |
0.41 |
$51.1 |
Ward, Andrew (FY10-11) x CIO: Schmid, Mark (FY07-09) |
4 |
MIT/ MMC |
(30Jun) |
6.3 |
0.29 |
$9.7 |
Alexander, Seth (FY07-11) |
5 |
Stanford U/ SMC |
(30Jun) |
6.3 |
0.22 |
$16.5 |
Powers, John (FY07-11) |
6 |
Northrup Grumman |
(31Dec) |
6.2 |
0.37 |
$21.3 |
Palmer, James (FY07-11) |
7 |
Princeton U/ PRINCO |
(30Jun) |
6.0 |
0.20 |
$17.1 |
Golden, Andrew (FY07-11) |
8 |
Yale U |
(30Jun) |
6.0 |
0.20 |
$19.4 |
Swensen, David (FY07-11) |
9 |
Northwestern U |
(31Aug) |
5.7 |
0.26 |
$7.2 |
McLean, William (FY07-11) |
10 |
Harvard U/ HMC |
(30Jun) |
5.6 |
0.18 |
$31.7 |
Mendillo, Jane (FY08-11) x CIO: El-Erian, Mohammed (FY07) |
11 |
Ford |
(31Dec) |
5.6 |
0.47 |
$58.6 |
Schloss, Neil (FY07-11) |
12 |
AIMCO |
(31Mar) |
5.6 |
0.41 |
$70.0 |
De Bever , Leo (FY08-11) |
13 |
AT&T |
(31Dec) |
5.4 |
0.39 |
$45.9 |
Adams, Wayne (FY07-11) |
14 |
U of Pennsylvania (30Jun) |
(30Jun) |
5.3 |
0.22 |
$6.6 |
Gilbertson, Kristen (FY07-11) |
15 |
NJ Pension Fund/ SIC |
(31Dec) |
5.2 |
0.27 |
$73.7 |
Walsh, Tim (FY11) x CIO: Clark, William (FY07-10) |
16 |
NC Ret Sys/ State Treasurer |
(30Jun) |
5.1 |
0.23 |
$74.9 |
Wischmeier, Shawn (FY11) x CIO: Gerrick, Patricia (FY07-10) |
17 |
Florida Retirement System/ SBA |
(30Jun) |
5.0 |
0.17 |
$128.5 |
Williams, Ashbel (FY09-11) x CIO: Stipanovich, C. (FY07-08) |
18 |
Wisc Retirement System/ SWIB |
(30Jun) |
4.7 |
0.16 |
$82.5 |
Villa, David (FY07-11) |
19 |
U of Texas/ UTIMCO |
(31Aug) |
4.7 |
0.23 |
$17.2 |
Zimmerman, Bruce (FY07-11) |
20 |
BCIMC |
(31Mar) |
4.5 |
0.22 |
$88.4 |
Pearce , Doug (FY07-11) |
21 |
Getty Trust |
(30Jun) |
4.5 |
0.14 |
$5.6 |
Williams, James (FY07-11) |
22 |
Gates Fdn Tr (Cascade Invest) |
(31Dec) |
4.4 |
0.19 |
$33.1 |
Larson, Michael (FY07-11) |
23 |
Hughes Med Institute |
(31Aug) |
4.4 |
0.19 |
$16.4 |
Zimmerman, Landis (F07-11) |
24 |
Kellogg Fdn |
(31Aug) |
4.3 |
0.26 |
$7.4 |
Wittenberg, Joel (FY2009-11) x CIO: Laler, Paul (FY2007-09) |
25 |
OTPP |
(31Dec) |
4.2 |
0.22 |
$119.1 |
Petroff , Neil (FY2009-11) x CIO: Bertram, Bob (FY2007-08) |
26 |
New York State TRS |
(30Jun) |
4.2 |
0.12 |
$89.9 |
Lee, Thomas (FY07-11) |
27 |
New York State CRF/ OSC |
(31Mar) |
4.2 |
0.13 |
$149.5 |
Etienne, Raudline (FY08-11) x CIO: Loglisci, David (FY07) |
28 |
Texas TRS |
(31Aug) |
4.0 |
0.17 |
$107.4 |
Harris, Brit (FY07-11) |
29 |
IBM |
(31Dec) |
3.8 |
0.22 |
$86.6 |
Kanner, Raymond (FY07-11) |
30 |
CalSTRS |
(30Jun) |
3.8 |
0.10 |
$155.5 |
Ailman, Chris (FY07-11) |
31 |
MacArthur Fdn |
(31Dec) |
3.6 |
0.13 |
$5.7 |
Manske, Susan (FY07-11) |
32 |
CalPERS |
(30Jun) |
3.4 |
0.04 |
$239.3 |
Dear, Joe (FY09-11) x CIO: Read, Russell (FY07-08) |
33 |
Moore Fdn |
(31Dec) |
3.4 |
0.11 |
$5.2 |
Strack, Denise (FY08-11) x CIO: Ruth, Alice (FY2007) |
34 |
CPPIB |
(31Mar) |
3.3 |
0.11 |
$150.7 |
Denison, David (FY07-11) |
35 |
Hewlett Fdn |
(31Dec) |
3.1 |
0.10 |
$7.3 |
Hoagland, L. R., (FY07-11) |
36 |
Lockheed Martin |
(31Dec) |
2.8 |
0.08 |
$27.3 |
Li, Christopher (FY07-11) |
37 |
Exxon Mobil |
(31Dec) |
2.6 |
0.07 |
$27.8 |
Kerwin, Colin (FY07-11) |
38 |
Ford Fdn |
(30Sept) |
2.5 |
0.08 |
$10.1 |
Doppstadt, Eric (FY2010-11) x CIO: Strumpf, Linda (F2007-09) |
39 |
Verizon |
(31Dec) |
2.5 |
0.07 |
$24.1 |
Lataille, Ron (FY11) x CIO: Heitmann, William (FY07-10) |
40 |
Packard Fdn |
(31Dec) |
1.9 |
0.02 |
$5.5 |
Moehling, John (FY2008-11) |
41 |
Ohio PERS |
(31Dec) |
1.6 |
0.01 |
$74.0 |
Lane, John (FY10-11) x CIO: Horn, Jennifer (FY07-09) |
42 |
Bank of America |
(31Dec) |
1.1 |
-0.01 |
$20.2 |
Moynihan, Brian, (FY10-11) x CIO: Lewis, Ken (FY07-09) |
43 |
Caisse |
(31Dec) |
0.6 |
-0.05 |
$161.7 |
Lescure, Roland (FY10-11) x CIO: Guay, Richard (FY2007-08) |
44 |
GE |
(31Dec) |
0.4 |
-0.05 |
$52.6 |
Ireland, Jay (FY07-11) |
45 |
Lilly Endowment |
(31Dec) |
0.3 |
-0.06 |
$6.1 |
White, E. G. (FY07-11) |
Second: the 19 funds with June (or March) fiscal years:
Rnk |
Fund/Investment Authority Ranked by 5 yr returns |
FY end |
2007-11 5-FY rtn % |
2007-11 5-FYr Sharpe Ratio |
FY-end AUM $bn |
Chief Investment Officer (FYs) |
1 |
Columbia U/ CIMC |
(30Jun) |
8.8 |
0.41 |
$7.8 |
Narvekar, Nirval (FY07-11) |
2 |
U of Michigan |
(30Jun) |
7.3 |
0.27 |
$7.8 |
Lundberg, Erik (FY07-11) |
3 |
MIT/ MMC |
(30Jun) |
6.3 |
0.29 |
$9.7 |
Alexander, Seth (FY07-11) |
4 |
Stanford U/ SMC |
(30Jun) |
6.3 |
0.22 |
$16.5 |
Powers, John (FY07-11) |
5 |
Princeton U/ PRINCO |
(30Jun) |
6.0 |
0.20 |
$17.1 |
Golden, Andrew (FY07-11) |
6 |
Yale U |
(30Jun) |
6.0 |
0.20 |
$19.4 |
Swensen, David (FY07-11) |
7 |
Harvard U/ HMC |
(30Jun) |
5.6 |
0.18 |
$31.7 |
Mendillo, Jane (FY08-11) x CIO: El-Erian, M. (FY07) |
8 |
AIMCO |
(31Mar) |
5.6 |
0.41 |
$70.0 |
De Bever , Leo (FY08-11) |
9 |
U of Pennsylvania |
(30Jun) |
5.3 |
0.22 |
$6.6 |
Gilbertson, Kristen (FY07-11) |
10 |
No Carolina Ret Sys/ State Treasurer |
(30Jun) |
5.1 |
0.23 |
$74.9 |
Wischmeier, Shawn (FY11) x CIO: Gerrick, Patricia (FY07-10) |
NA |
60/40 Index |
(30Jun) |
5.0 |
0.21 |
NA |
Skorina, Charles |
11 |
Florida Retirement System/ SBA |
(30Jun) |
5.0 |
0.17 |
$128.5 |
Williams, Ashbel (FY09-11) x CIO: Stipanovich, Coleman (FY07-08) |
12 |
Wisconsin Retirement System/ SWIB |
(30Jun) |
4.7 |
0.16 |
$82.5 |
Villa, David (FY07-11) |
13 |
BCIMC |
(31Mar) |
4.5 |
0.22 |
$88.4 |
Pearce , Doug (FY07-11) |
14 |
Getty Trust |
(30Jun) |
4.5 |
0.14 |
$5.6 |
Williams, James (FY07-11) |
15 |
New York State TRS |
(30Jun) |
4.2 |
0.12 |
$89.9 |
Lee, Thomas (FY07-11) |
16 |
New York State CRF/ OSC |
(31Mar) |
4.2 |
0.13 |
$149.5 |
Etienne, Raudline (FY08-11) x CIO: Loglisci, David (FY07) |
17 |
CalSTRS |
(30Jun) |
3.8 |
0.10 |
$155.5 |
Ailman, Chris (FY07-11) |
18 |
CalPERS |
(30Jun) |
3.4 |
0.04 |
$239.3 |
Dear, Joe (FY09-11) x CIO: Read, Russell (FY07-08) |
19 |
CPPIB |
(31Mar) |
3.3 |
0.11 |
$150.7 |
Denison, David (FY07-11) |
Third: 26 funds with December (or August, or September) fiscal years:
Rnk |
Fund/Investment Authority Ranked by 5 yr returns |
FY end |
2007-11 5-FY rtn % |
2007-11 5-FYr Sharpe Ratio |
FY-end AUM $bn |
Chief Investment Officer (FYs) |
1 |
Boeing |
(31Dec) |
6.3 |
0.41 |
$51.1 |
Ward, Andrew (FY2009-11) x CIO: Schmid, Mark (FY07-09) |
2 |
Northrup Grumman |
(31Dec) |
6.2 |
0.37 |
$21.3 |
Palmer, James (FY07-11) |
3 |
Northwestern U |
(31Aug) |
5.7 |
0.26 |
$7.2 |
McLean, William (FY07-11) |
4 |
Ford |
(31Dec) |
5.6 |
0.47 |
$58.6 |
Schloss, Neil (FY07-11) |
5 |
AT&T |
(31Dec) |
5.4 |
0.39 |
$45.9 |
Adams, Wayne (FY07-11) |
6 |
New Jersey Pension Fund/ SIC |
(31Dec) |
5.2 |
0.27 |
$73.7 |
Walsh, Tim (FY11) x CIO: Clark, William (FY07-10) |
7 |
U of Texas/ UTIMCO |
(31Aug) |
4.7 |
0.23 |
$17.2 |
Zimmerman, Bruce (FY07-11) |
8 |
Gates Fdn Tr (Cascade Inv) |
(31Dec) |
4.4 |
0.19 |
$33.1 |
Larson, Michael (FY07-11) |
9 |
Hughes Med Institute |
(31Aug) |
4.4 |
0.19 |
$16.4 |
Zimmerman, Landis (F07-11) |
10 |
Kellogg Fdn |
(31Aug) |
4.3 |
0.26 |
$7.4 |
Wittenberg, Joel (FY2009-11) x CIO: Laler, Paul (FY2007-09) |
11 |
OTPP |
(31Dec) |
4.2 |
0.22 |
$119.1 |
Petroff , Neil (FY2009-11) x CIO: Bertram, Bob (FY2007-08) |
12 |
Texas TRS |
(31Aug) |
4.0 |
0.17 |
$107.4 |
Harris, Brit (FY07-11) |
13 |
IBM |
(31Dec) |
3.8 |
0.22 |
$86.6 |
Kanner, Raymond (FY07-11) |
14 |
MacArthur Fdn |
(31Dec) |
3.6 |
0.13 |
$5.7 |
Manske,Susan (FY07-11) |
15 |
Moore Fdn |
(31Dec) |
3.4 |
0.11 |
$5.2 |
Strack, Denise (FY08-11) x CIO: Ruth, Alice (FY2007) |
NA |
60/40 Index |
(31Dec) |
3.2 |
0.13 |
NA |
Charles A. Skorina & Co |
16 |
Hewlett Fdn |
(31Dec) |
3.1 |
0.10 |
$7.3 |
Hoagland, Laurance R., (FY07-11) |
17 |
Lockheed Martin |
(31Dec) |
2.8 |
0.08 |
$27.3 |
Li, Christopher (FY07-11) |
18 |
Exxon Mobil |
(31Dec) |
2.6 |
0.07 |
$27.8 |
Kerwin, Colin (FY07-11) |
19 |
Ford Fdn |
(30Sept) |
2.5 |
0.08 |
$10.1 |
Doppstadt, Eric (FY2010-11) x CIO: Strumpf, Linda (F2007-09) |
20 |
Verizon |
(31Dec) |
2.5 |
0.07 |
$24.1 |
Lataille, Ron (FY11) x CIO: Heitmann, William (FY07-10) |
21 |
Packard Fdn |
(31Dec) |
1.9 |
0.02 |
$5.5 |
Moehling, John (FY2008-11) |
22 |
Ohio PERS |
(31Dec) |
1.6 |
0.01 |
$74.0 |
Lane, John (FY10-11) x CIO: Horn, Jennifer (FY07-09) |
23 |
Bank of America |
(31Dec) |
1.1 |
-0.01 |
$20.2 |
Moynihan, Brian, (FY10-11) x CIO: Lewis, Ken (FY07-09 |
24 |
Caisse |
(31Dec) |
0.6 |
-0.05 |
$161.7 |
Lescure, Roland (FY10-11) x CIO: Guay, Richard (FY2007-08) |
25 |
GE |
(31Dec) |
0.4 |
-0.05 |
$52.6 |
Ireland, Jay (FY07-11) |
26 |
Lilly Endowment |
(31Dec) |
0.3 |
-0.06 |
$6.1 |
White, E. G. (FY07-11) |
Ford and Boeing: the great investors no one noticed:
One reason we did this study was to salve our own curiosity about the relative performance of the big corporate pensions.
The big endowments like Harvard and Yale announce their annual investment returns with a flurry of press releases. And, when the big public pensions post bad numbers there are rumbles in the legislatures and letters to the editors.
The corporate pensions, however, rarely publish explicit percentage rates of return. The information is there implicitly, of course, in the bowels of their annual reports. But the financial press is usually interested only in how much money will have to be diverted from current earnings to keep the pensions funded, information which moves the markets and affects the stock price. But required annual contributions are also driven by actuarial and economic factors; investment returns are only a piece of that puzzle.
Besides, when CalPERS stumbles, everyone knows that it’s the taxpayers who are on the hook, sooner or later. If the GE pension fund is underperforming, and their profits consequently pinched by a few cents per share to make up the difference, the world in general doesn’t take much notice.
So, when we dug out the numbers, we were as surprised as anyone at how the corporate pensions stacked up against other comparable investors.
What we know about Ford Motor Company is that they make cars and that, unlike their Detroit peers, they didn’t quite go bankrupt in 2008. They hired a guy from Boeing to run the company, and he seems to be doing pretty well.
But they also manage almost $60 billion in pension funds, and, if you judge their recent performance by Sharpe ratio, they’re doing it better than anybody.
Their absolute return for 2007-2011 was a very good 5.6 percent; exactly the same as the Harvard endowment. That ranks them 11th overall for return and number 1 among the December FY cohort.
But look at that Sharpe number: it’s 0.45. Harvard, with the same 5.6 percent return, had a Sharpe number of only 0.18 (and despite the advantage of an earlier fiscal year). So, the Ford Treasury team matched Harvard on absolute return, and did it with significantly less variance. Or, as most people are willing to say, they earned the same return with less risk.
By our calculations Ford had the lowest standard deviation of returns among all 45 funds and the Sharpe number is, of course, an inverse function of SD. Even with the disadvantage of their later fiscal year, Ford’s performance on a risk-adjusted basis was better than any U.S. endowment, foundation, or public pension. It was also better than the excellent big public investors up in Canada. And, of course, they beat all their peers among big corporate pensions.
Did you know that? We didn’t.
Boeing, Canada’s AIMCO, and the Columbia University endowment, were all tied for a close second-place with a Sharpe number of 0.41.
The man responsible at Ford is Neil Schloss, Ford’s VP and Treasurer since 2007 (coinciding almost exactly with our 5-year span). As with most corporate treasury staffers, Mr. Schloss’ team in Dearborn hasn’t been stove-piped into portfolio management for their whole careers. They’ve typically rotated through the whole gamut of treasury functions before landing with the asset management group in mid-career.
Top 20 E & F & Pension funds ranked
by Sharpe Ratio, regardless of fiscal year:
SR Rank |
Fund/Investment Authority |
Sharpe Ratio |
01 |
Ford |
0.47 |
02 |
Boeing |
0.41 |
03 |
AIMCO |
0.41 |
04 |
Columbia U |
0.41 |
05 |
AT&T |
0.39 |
06 |
NorthrupGrumman |
0.37 |
07 |
MIT/ MMC |
0.29 |
08 |
NJ Pension Fund/ SIC |
0.27 |
09 |
U of Michigan |
0.27 |
10 |
Northwestern U |
0.26 |
11 |
Kellogg Fdn |
0.26 |
12 |
U of Texas/ UTIMCO |
0.23 |
13 |
NC Ret Sys/ State Treas |
0.23 |
14 |
IBM |
0.22 |
15 |
Stanford U/ SMC |
0.22 |
16 |
U of Pennsylvania |
0.22 |
17 |
OTPP |
0.22 |
18 |
BCIMC |
0.22 |
00 |
60/40 Index 30JunFY |
0.21 |
19 |
Yale U |
0.20 |
20 |
Princeton U/ PRINCO |
0.20 |
Treading right on heels of Ford is not Harvard or Yale, but Boeing. Again, all we know about Boeing is that they make big airplanes. And that the guy who probably should have gotten the CEO job there, but didn’t, was hired by Ford.
The Boeing Company had an even higher absolute return than Ford: 6.3 percent, ranking them third overall. Only two veteran endowment managers — Narv Narvekar at Columbia and Erik Lundberg at University of Michigan – earned better returns: 8.8 and 7.3 percent, respectively.
Like Ford, Boeing has a de-risked portfolio with a modest standard deviation. Their Sharpe number ranks the airplane company right behind the car company.
So, apparently that liability-driven investment stuff, with its tilt away from equities and toward long-duration credit and high-quality bonds, actually works. At least it worked in this 5-year period, executed by managers who knew what they were doing.
Much of Boeing’s performance can be attributed to Mark Schmid, who ran their pension investments until 2009, when he was recruited to run the University of Chicago endowment. His impressive returns at Boeing were undoubtedly a factor in that hire.
He turned the Boeing job over to his young second-in-command, Andrew Ward. I’ve had some exchanges with Andrew, and, since he’s a nice guy and a Chicago MBA, I can almost forgive him for getting that job at age 38.
GE and BofA: the money managers who can’t shoot straight:
After admiring Ford and Boeing’s performance (and noting that AT&T and NorthrupGrumman also did very well), we wondered how the real pros were doing.
After all, Bank of America and General Electric (via GE Capital) are major asset managers in their own right. They charge other people for financial services, so they must know what they’re doing.
In fact, BofA and GE are way down on the bottom of the Sharpe rankings, ranked 42 and 44, respectively. Their SRs are actually negative! Their absolute return numbers were no better: they ranked 42 and 44 on that scale, as well. GE’s absolute return was a sad 0.4 percent, as compared to Boeing’s robust 6.3 percent.
Now, the mathematicians will tell you that the SR is a “dimensionless” number which is meaningless taken by itself. But a Sharpe number which is close to zero, or negative, has a very straightforward meaning: it means the investor could have made as much or more money just by laddering 3-month T-bills for five years and saved themselves a lot of trouble.
We don’t profess to understand why the guys who make cars and airplanes are better investors than GE Capital and Bank of America. We’re sure the explanation is complicated.
We note however, that both GE and BofA are currently freezing their defined-benefit pension plans and pushing everybody into 401Ks as fast as they can. Whether low investment returns are a cause or effect, we can’t say.
We also note that both Ford and Boeing operate in blue states, facing strong unions. They are not going to be walking away from their DB plans anytime soon, so they need to make a virtue of necessity and get the best returns they can.
Asset allocation also figures into it, of course. Even without doing a deep dive into those numbers, some differences stand out.
In 2011, Ford had 47% in fixed income; but GE had only 27%. In this period, returns on investment-grade bonds have been very good. Yields are low, of course, but we’re looking at total return. The Barclay’s 5-10 year credit index had a 5-year return of 6.7% in 2007-2011. Bonds lost a lot less than stocks in 2008-2009, and they boomed in 2010.
Whatever the reasons, it’s hard to believe that either BofA or GE is devoting their best talent to pension fund investing, based on these numbers.
We couldn’t figure out who was running the BofA pension portfolio, so we just listed CEO Brian Moynihan. His revenue is down 50 percent, and he’s busy trying to cut 16,000 jobs, so we don’t think he’ll even notice one more problem on his plate.
Jay Ireland was president and CEO of the GE Asset Management unit through most of 2007-2011. GEAM runs about $120 billion, which includes portfolios for institutional investors around the world in addition to the GE retirement assets. Whether those outside customers got better returns than the GE pensioners, we can’t say.
Mr. Ireland left last March to take the newly-created post of president and CEO of GE Africa. We presume this is the regular rotation that upward-bound execs at GE expect every few years, and may have nothing to do with pension returns.
He was succeeded in the GEAM job by Dmitri Stockton in December.
To be continued:
There is much more to be gleaned from these rankings, but we’ve tried our readers’ patience enough for one newsletter. For now, you all can ponder our charts and discuss among yourselves.
In fact, we’ll give you a few more. Below are abbreviated lists of the five categories we’re analyzing
We’ll be back soon with Part 2 of our commentary on the Pure Performance funds.
Pure Performance by Fund Type:
01 Top 10 U.S. Corp Pensions: 2007-11 Performance:
5-FY Rtn Rank |
Fund |
AUM (US$ bil) |
5-FY Rtn |
Sharpe Ratio |
01 |
Boeing |
$51.1 |
6.3 |
0.41 |
02 |
NorthrupGrumman |
$21.3 |
6.2 |
0.37 |
03 |
Ford |
$58.6 |
5.6 |
0.47 |
04 |
AT&T |
$45.9 |
5.4 |
0.39 |
05 |
IBM |
$86.6 |
3.8 |
0.22 |
00 |
60/40 Index (31Dec) |
NA |
3.2 |
0.13 |
06 |
Lockheed Martin |
$27.3 |
2.8 |
0.08 |
07 |
Exxon Mobil |
$27.8 |
2.6 |
0.07 |
08 |
Verizon |
$24.1 |
2.5 |
0.07 |
09 |
Bank of America |
$20.2 |
1.1 |
-0.01 |
10 |
GE |
$52.6 |
0.4 |
-0.05 |
02 Top 10 U.S. Pub Pensions: 2007-11 Performance:
5-FY Rtn Rank |
Fund |
AUM (US$ bil) |
5-FY Rtn |
Sharpe Ratio |
01 |
New Jersey SIC |
73.7 |
5.2 |
0.27 |
02 |
NC Ret Sys |
74.9 |
5.1 |
0.23 |
03 |
FL SBA |
128.5 |
5.0 |
0.17 |
00 |
60/40 Index (30Jun) |
NA |
5.0 |
0.21 |
04 |
Wisc SWIB |
82.5 |
4.7 |
0.16 |
05 |
NYS TRS |
89.9 |
4.2 |
0.12 |
06 |
NYS CRF/ OSC |
149.5 |
4.2 |
0.13 |
07 |
Texas TRS |
107.4 |
4.0 |
0.17 |
08 |
CalSTRS |
155.5 |
3.8 |
0.10 |
09 |
CalPERS |
239.3 |
3.4 |
0.04 |
10 |
Ohio PERS |
74.0 |
1.6 |
0.01 |
03 Top 10 U.S. Endowments: 2007-11 Performance:
5-FY Rtn Rank |
Fund |
AUM (US$ bil) |
5-FY Rtn |
Sharpe Ratio |
01 |
Columbia U/ |
7.8 |
8.8 |
0.41 |
02 |
U of Michigan |
7.8 |
7.3 |
0.27 |
03 |
Stanford U/ SMC |
16.5 |
6.3 |
0.22 |
04 |
MIT/ MMC |
9.7 |
6.3 |
0.29 |
05 |
Yale U |
19.4 |
6.0 |
0.20 |
06 |
Princeton U/ PRINCO |
17.1 |
6.0 |
0.20 |
07 |
Harvard U/ HMC |
31.7 |
5.6 |
0.18 |
08 |
Northwestern U |
7.2 |
5.7 |
0.26 |
09 |
U of Pennsylvania |
6.6 |
5.3 |
0.22 |
00 |
60/40 Index (30Jun) |
NA |
5.0 |
0.21 |
10 |
U of Texas/ UTIMCO |
17.2 |
4.7 |
0.23 |
04 Top 10 U.S. Priv Foundations: 2007-11 Performance:
5-FY Rtn Rank |
Fund |
AUM (US$ bil) |
5-FY Rtn |
Sharpe Ratio |
01 |
Getty Trust |
5.6 |
4.5 |
0.14 |
02 |
Gates Fdn Tr |
33.1 |
4.4 |
0.19 |
03 |
Hughes Med Institute |
16.4 |
4.4 |
0.19 |
04 |
Kellogg Fdn |
7.4 |
4.3 |
0.26 |
05 |
MacArthur Fdn |
5.7 |
3.6 |
0.13 |
06 |
Moore Fdn |
5.2 |
3.4 |
0.11 |
00 |
60/40 Index (31Dec) |
NA |
3.2 |
0.13 |
07 |
Hewlett Fdn |
7.3 |
3.1 |
0.10 |
08 |
Ford Fdn |
10.1 |
2.5 |
0.08 |
09 |
Packard Fdn |
5.5 |
1.9 |
0.02 |
10 |
Lilly Endowment |
6.1 |
0.3 |
-0.06 |
05 Top 5 Can. Public Funds: 2007-11 Performance:
5-FY Rtn Rank |
Fund |
AUM (US$ bil) |
5-FY Rtn |
Sharpe Ratio |
01 |
AIMCO |
70.0 |
5.6 |
0.41 |
00 |
60/40 Index (30Jun) |
NA |
5.0 |
0.21 |
02 |
BCIMC |
88.4 |
4.5 |
0.22 |
03 |
OTPP |
119.1 |
4.2 |
0.22 |
04 |
CPPIB |
150.7 |
3.3 |
0.11 |
00 |
60/40 Index (31Dec) |
NA |
3.2 |
0.13 |
05 |
Caisse |
161.7 |
0.6 |
-0.05 |
Further Pedantic Notes on Methodology:
Some funds publish explicit annual return numbers expressed as percentages, and even five-year returns. For some others, including a few of the private foundations, and all of the corporate pensions, we had to hand-calculate returns from financial statements. These are not as precise as the time-weighted numbers which custodian banks produce for their clients, but we doubt we deviate from that canonical (but unpublished) return by more than 50 basis points in any given year. A little crude, but we’re not doing financial reporting, and it’s good enough for our purposes, since we’re more interested in ranking than in absolute numbers.
Also, Texas A&M University is now, technically, the 10th-largest endowment, having crept past Universityof Pennsylvania. But more than half of the TAM endowment is actually managed by UTIMCO, with smaller portions managed by independent foundations or the school’s treasurer. So, for purposes of measuring investment performance, we’ve let Mr. Zimmerman’s shop represent both institutions, and we’re putting Penn back in the top ten. No offense to the Aggies.
Also, the Pew group of charitable trusts, taken together should probably be in the top-ten list for private foundations as of 2011. But they don’t seem to publish a consolidated statement of investment performance, and hand-calculating it defeated us. No offense to all the excellent work done by the Pew people. So, we omitted the Pew trusts and bumped the Moore Foundation into our top ten.
Finally, assets for the corporate pensions include all plans clearly labeled “pensions,” wherever they’re domiciled. Some of these firms have distinct pension schemes for foreign employees in, e.g., the UK. We’ve taken them all together, as seems proper. The extent to which investment policy is centralized in the U.S. isn’t always clear, but we assume that it ultimately rests with the board of the U.S. parent and we treat them as one entity. All assets for non-pension post-retirement plans (e.g., medical plans) are excluded from our calculations.
===============================================================
John Maynard Keynes: The First Great Endowment Manager:
We heard a lot about the late J. M. Keynes a while back, when Mr. Obama launched his great stimulus. Keynes was cited so often that ordinary folk might have thought he was advising the President.
Lord Keynes, of course, has been dead for sixty-six years, but he probably would have enjoyed the notoriety. It was he who said that “even the most practical man of affairs is usually in the thrall of the ideas of some long–dead economist,” and he has become the best example of his own dictum.
Whether Keynes was ultimately right or wrong about macroeconomics we’ll have to leave to higher authorities; but from our humble perch we can now report that he was, at the very least, a heck of an endowment manager.
Today he would be called a chief investment officer, but back then his title was Bursar of Kings College, University of Cambridge.
Keynes was the son of a Cambridge lecturer, and attended Kings on a scholarship. He earned a BA in mathematics in 1904 (what the Brits call a “first,” which is apparently very good). He had hardly any formal instruction in economics. In 1924, when he was already a very busy and accomplished man, his old college asked for his help in running their endowment, which was then mostly invested in real estate, as it had been for several hundred years.
It’s long been known that Keynes did very well with the Kings College portfolio from 1924 to 1946, but only recently did anyone take the trouble to dust off those old trading records and closely analyze his performance.
David Chambers of (appropriately) the Cambridge Business School and Elroy Dimson (University of London Business School) have pored through those old records and concluded that he achieved a long-term Sharpe ratio of 0.69, compared to 0.45 on a benchmark balanced portfolio in the same period. That’s a very remarkable performance in any era.
And, for all you readers who think you’ve had some rough sledding, recall that Keynes did this through the Crash of ’29, the Great Depression, and the cataclysm of World War II. Oh, and he did it as an unpaid part-time job, while he concentrated on writing his revolutionary books, chairing an insurance company, advising presidents and prime ministers, and inventing the post-War economic arrangements of the world.
“Progressive” admirers of Keynes, however, may be chagrinned to learn that he also applied the same strategies to his own personal portfolio, and made himself a tidy fortune along the way.
As the authors point out, Keynes accomplished this by using investment strategies that were just as revolutionary in his day as the so-called Yale model has been in our time.
In the 1920s and 30s, the major institutional investors were insurance companies, and they loaded up on bonds. Respectable fiduciaries, especially after the Crash, shunned stocks. But Keynes, with mathematical intuition which was rare among investors of his generation, recognized and exploited the risk premium available to long-term investors with equities vs. conventional fixed-income assets.
The authors argue that Keynes’s early allocation to equities was at least as radical as the much later move to illiquid assets in the late 20th century by Yale and Harvard.
His equity weighting in the 1930s was 60 percent, and in the 1940s was 73 percent, unheard-of allocations at the time. His portfolio tilted toward small-cap and mid-cap stocks, which he researched himself, while maintaining an above-average dividend yield.
One of the most striking aspects of this story is the way Keynes was willing to completely scrap and re-invent his investment philosophy in the light of hard experience. He started out as what we would call a strategic macro manager, believing that he understood the credit cycle and could time the market. But, after the Crash, he evolved into a Buffett-style bottom-up stock picker in the early 1930s. From that point his purchases of his long-term holdings began to outperform the market on a consistent basis.
They show that he constructed highly idiosyncratic portfolios with
pronounced size and value tilts, anticipating some of the better performing hedge fund managers of our own time.
The authors point out that, in addition to his pure investment skills, Keynes benefitted from a governance set-up that gave him maximum discretion. The Fellows of his college had complete confidence in Keynes, permitting him to trade whatever asset classes he liked and shift his investment approach when necessary.
Keynes also served on the boards of two insurance companies and co-managed a publicly-traded closed-end trust. But he withdrew from these roles because he couldn’t deal with being cross-examined and second-guessed by his colleagues. He stuck with his Cambridge job primarily, it seems, because it was fun.
Since it’s a proper academic paper, Chambers and Dimson spend some time explaining all their sophisticated methodology and citing other scholars. We understand. They’re professors and they have to make a living. But most of it is quite lucid: a fascinating story about a fascinating man. And if you think it’s only of historical interest, then you’re probably wrong.
It’s a free download, here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2023011
Keynes the Stock Market Investor by David Chambers and Elroy Dimson.
