Monday, May 2, 2011

Public Pension Exodus?

aiCIO reports, In Latest Public Pension Exodus, Chief Investment Officer of CT Scheme Quits:
The political and financial strains on public pension plans in the United States have often pushed top-tier investment managers to seek opportunities elsewhere.

In the latest example of a chief investment officer at a public pension leaving for the private sector: The $25 billion Connecticut Retirement Plans and Trust Funds (CRPTF) CIO Timothy Corbett has resigned to become CIO and executive vice president of the Massachusetts Mutual Life Insurance Company, where he will be in charge of the firm's overall investment strategy. The resignation of Corbett will take effect May 20.

“Connecticut has been well-served by Tim’s exceptional skills and affable professionalism,” said Denise Nappier, Connecticut’s treasurer, in a statement. “I am deeply grateful for his contributions.”

Corbett's new supervisor -- MassMutual's Chairman, President, and CEO Roger Crandall -- issued a separate statement on the CIO appointment, saying: “With our unwavering focus on delivering long-term value for our policyholders and given today’s new world of accelerated economic change and increased regulation, it is important to have a Chief Investment Officer focused exclusively on this role. Tim is a true industry veteran with a strong record of performance with more than 20 years in leadership roles as an investment professional. With Tim’s extensive investment expertise, risk management discipline and leadership capabilities, I have every confidence he will continue our track record of exceptional performance."

CRPTF's investment performance speaks to Corbett's strong track record. Last year, the scheme produced a net return of 12.88% for the fiscal year ended June 30, increasing in value by $1.5 billion and finishing the fiscal year with assets of $21.9 billion. "What drove the increase in return was the fact that our plan was so well-positioned and diversified even going into the downturn in late 2008 and early '09, with about 10% in our liquidity fund," Corbett told aiCIO in August, noting that during fiscal 2010, the fund's four best-performing sectors -- emerging market equities, high yield bonds, emerging market debt, and private equity portfolio -- each returned between roughly 17% and 25%.

From the departure of Massachusetts Pension Reserves Investment Management's (MassPRIM) Michael Travaglini to the more recent departure of San Diego County Employees Retirement Association's (SDCERA) Lisa Needle, examples of investment heads leaving the public pension arena -- largely burdened with limited resources, severe underfunding, and volatile boards -- for the private sector are numerous. Another such notable example is the departure of Timothy Barrett, who served as the chief investment officer at the San Bernardino County Employees' Retirement Association (SBCERA) and now works as Eastman Kodak's director of pension investments worldwide. "For me, Kodak offered an opportunity to manage pension funds globally with various defined benefit and defined contribution plans around the world," Barrett told aiCIO, referring to his departure from SBCERA in October 2010. "It was simply an opportunity I could not turn down."

In January,Tim Thonis, pension administrator of the Ventura County Employees' Retirement Association (VCERA) in California, resigned unexpectedly, and while speculators blamed years of failed promises over pay raises, he cited governance as the reason for his departure. VCERA is still left without a CIO.

In a 6-3 vote, the Ventura County Retirement Board had declined to make changes that could have resulted in higher salaries for top officials at the fund. Over the past two years, the Retirement Board had recommended raising Thonis’ salary, but action had been delayed by County Executive Officer Marty Robinson and the Board of Supervisors. Thonis identified the attempt to raise his salary as one of fairness, as he was promised certain assurances about compensation when he was hired. The departure of Thonis, who ran the roughly $3 billion VCERA fund as both CIO and CEO, marks the tension at public pension funds over pay, as schemes struggle to retain their best talent.

"Tim Thonis was doing an outstanding job. Everyone said he was doing an outstanding job," Ventura Chairman Tracy Towner, a senior district attorney investigator, told aiCIO, noting his belief that politics at public pensions are hindering the investment process. "Politics hindered our ability to retain someone like Thonis," he said. "Now, Tim's at the Orange County retirement board making a lot more money than he made here."

As government-run pensions continue to run on government wages, chief investment officers and others in the industry note that schemes in the US may serve as a training ground for highly skilled people, such as Corbett, Barrett, and Thonis, who will eventually seek opportunities in the private sector with more money and less politics.

Not much to add here except to say that they got to get the compensation right at US public pension funds or else they risk losing all their talent away to the private sector. These high level departures should serve as a wake-up call to boards at these plans that something needs to be done to prevent more exodus from the public pension ranks. The success of any plan depends on its ability to attract and retain talented and experienced pension fund managers.

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