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August 04, 2011 • Michael Peltz and Frances Denmark
Page 1 of 10
On the morning of May 17, nine leading pension, endowment and foundation investors gathered for a roundtable discussion at the Union League Club in New York City. The previous evening each had been recognized for investment excellence at Institutional Investor’s annual U.S. Investment Management Awards dinner. The morning get-together was an opportunity for the nine to share their most challenging investment questions — and to attempt to come up with answers. Uppermost on everyone’s mind: how to manage portfolios in uncertain times.
As CIO of the California State Teachers’ Retirement System in Sacramento, Christopher Ailman, 53, has fully integrated environmental, social and corporate governance (ESG) into the $153 billion plan’s investment thinking, and he delivered a 12.7 percent return in 2010. Former corporate attorney H. Craig Slaughter, 53, was tapped by the incoming state treasurer in 1989 to shore up what is now called the West Virginia Investment Management Board. He proceeded to move into equities in 1998, followed by alternatives in the spring of 2008 — steering the $9.8 billion fund to a 16 percent return in 2010. In 1988, University of Notre Dame alumnus Scott Malpass was appointed head of his school’s now-$6 billion endowment. A loyal and long-tenured group of mostly fellow alums have helped the 48-year-old CIO post a 10 percent annual return over the past decade. While raising the alternative-investment allocation from 18 to 58 percent between 2003 and 2010, Donna Dean, CIO of the Rockefeller Foundation, instituted an annual liquidity exercise that has helped the $3.5 billion fund produce a five-year annualized return of 6.8 percent. Ralph Egizi, 63, director of benefits finance and investments at Eastman Chemical Co. in Kingsport, Tennessee, built a 30 percent allocation to alternative investments while eschewing hedge funds. That has helped him deliver a 12 percent annualized return since taking over the now-$1.1 billion pension portfolio in 1999. A cautious approach to private equity, a 10 percent cash allocation and a flexible investment strategy by CIO Brian Hiestand, 40, enabled the $600 million College of William & Mary Foundation to survive the financial crisis of 2008–’09 and beat its peers by 220 basis points last year. Wayne Pierson, 60, CIO and CFO of the Meyer Memorial Trust in Portland, Oregon, created an annual investment roundtable and award competition at the now-$640 million foundation to motivate external managers, helping him produce a 10 percent-plus annualized return over the past decade. A previous career in corporate finance was key to the decision by Dennis Duerst, 52, to adopt a liability-driven investment plan for St. Paul, Minnesota-based 3M Co.’s $15 billion pension fund, enabling Duerst, president of 3M Investment Management Corp., to achieve a 14.4 percent return in 2010. Myra Drucker, 63, has held top investment positions with General Motors Asset Management, International Paper Co. and Xerox Corp. Today the pension guru spends much of her time on the boards of GMO, Kresge Foundation and Sarah Lawrence College.
Ever since the financial crisis hit their funds in late 2007, institutional investors have been dealing with increasing risks from both natural and man-made disasters. Although most funds turned in positive performances in 2010, assets remain below their 2007 highs. “I think our jobs now are harder than they’ve ever been,” observed Christopher Ailman, CIO of California State Teachers’ Retirement System.
Pension fund, foundation and endowment investors face many of the same issues: ensuring that there is enough liquidity in their portfolios while seeking returns, creating the flexibility to move nimbly when investment opportunities arise and negotiating the balance that is tipping from developed to emerging markets. “I’ve been going to China almost every year since 1989,” reported Scott Malpass, CIO of the University of Notre Dame. “They’re going to be the winners for the next century.”
During the lively and collegial discussion, the participants took a hard look at fund governance in addition to sharing their thoughts on a variety of investments, from venture capital and hedge funds to commodities and Japan. In addition to Ailman and Malpass, the group comprised Donna Dean, CIO of the Rockefeller Foundation; Myra Drucker, former CIO of the International Paper Co. and Xerox Corp. pension funds; Dennis Duerst, president of 3M Investment Management Corp.; Ralph Egizi, director of benefits finance and investments at Eastman Chemical Co.; Brian Hiestand, CIO of the College of William & Mary Foundation; Wayne Pierson, CFO and CIO of the Meyer Memorial Trust; and H. Craig Slaughter, executive director of the West Virginia Investment Management Board. Institutional Investor Editor Michael Peltz and Senior Writer Frances Denmark moderated the discussion, excerpts from which follow.
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