Asset Allocation, Defined Benefit, Governance, Institutional Investors, Pension Funds, Public Funds

Asset Owner Profile: Montana’s Cullen Casts Himself as Lifelong Learner

Joe Cullen, cio, Montana Board of Investments

Joe Cullen is the chief investment officer for the Montana Board of Investments (MBOI). Having held various roles with many types of financial institutions across a 25-year-plus career, has provided him with broad perspective on finance and investment and industry trends, as well as opportunities to learn from some “great people.” He says his career has benefited from the variety of institutions for which he has worked and the diversity of his investment positions. “I think of myself as a lifelong learner,” he says. “I’ve had a long list of bosses, co-workers, peers and colleagues that have contributed to my learning.” Cullen is a member of IA’s Advisory Board.

IA: Tell me about Montana Board of Investments

Cullen: The Board prudently invests essentially all the State of Montana’s money, for its pension funds, trust funds, insurance reserves, operating funds, and certain local government funds. Today, the Board manages more than $18 billion for all state agencies and many local governments, with the largest percentage of assets (approximately $11 billion) invested for the pension plans. The Board also oversees in-state loan programs to diversify, strengthen, and stabilize the Montana economy.


…It is always good when you experience a good investment return, but my best experiences have been associated with learning, whether its from the actions of others, the decisions I have made, or the steps we have taken together.

IA:  How did your career path lead to your current role with MBOI?

Cullen: Since graduating with an MBA from the Tepper School of Business at Carnegie Mellon University in 1991, my career has focused on institutional investment management. My first position after Tepper was as an asset-liability analyst within the Quantitative Research Group at Lincoln National Investment Management. I learned the importance of considering the overall mission and understanding the liabilities as well as the investment assets.

Then, in 2001, after a few different stops, including Lincoln, The Boston Company Asset Management, and M&I Trust—all fixed-income roles as an analyst in the early years, then as a portfolio manager—I joined Lucent Asset Management Company to assist with overseeing different retirement and health-care-related investments. I then moved to the other side of the table as an allocator of pension assets because I decided that I was interested in becoming part of managing broader portfolios of investments for a specific client need.

In this role, and my next role with Amherst College, as a senior investment manager, overseeing endowment assets, which began in 2007, I expanded my familiarity with and understanding of the importance of a strong governance structure, utilizing different asset classes and investment strategies, and working with external investment managers and service providers.

My last position before joining MBOI in 2015 was within the Global Asset Allocation team at Fidelity Investments, 2010-2014, as head of institutional portfolio management. This role provided me an increased opportunity to lead and mentor a team of investment professionals. More than any other position, this role taught me that although we may have similar backgrounds, individuals learn, communicate and need to be led differently. Additionally, I had the opportunity to engage and discuss investment issues with a wide spectrum of investment committees and boards with different levels of experience and knowledge regarding investments.

Beyond learning from the experiences of these different roles, engaging with strong leaders and hundreds of investment professionals, I participated in educational programs with the CFA Institute, the CAIA Association, and the Global Association of Risk Professionals


I believe enterprise goals are achieved by advocating and creating a culture that is based on mutual respect, collaboration, learning, challenging of ideas, execution of best practices, and accountability.

IA: How is your MBOI investment team structured?

Cullen: The governance structure at MBOI starts with a nine-member board that approves the asset allocation ranges and all the policies that form the foundation to achieve the board’s missions. The executive director, Dan Villa, to whom I report, oversees daily business. As the chief investment officer, I work alongside an investment staff of 15 people managing portfolios internally as well as selecting and monitoring investment strategies managed by external managers. 

The investment staff is separated functionally into areas that include public markets, private equity, internally managed fixed income, real assets, risk management and investment operations. Although the investment staff has various areas of specialty, a key structural consideration for our activities is to help ensure we don’t get too isolated in our investment approach or implementation. Specialized teams tend to be too isolated and impacted by groupthink, so we try to have cross-functional expertise address important issues.

IA: How would you describe your management style?

Cullen: I believe enterprise goals are achieved by advocating and creating a culture that is based on mutual respect, collaboration, learning, challenging of ideas, execution of best practices, and accountability.

IA: What is MBOI’s asset allocation breakdown?

Cullen: Currently, the pension assets are allocated in the following areas: 30% U.S. Equities, 16% Non-U.S. equities (including Emerging Markets), 12% Private Equity/Debt, 8% Real Estate, 3% Natural Resources, 3% High Yield Fixed Income, 22% Investment-Grade Fixed Income, 2% in Diversifying Strategies, and 4% in Cash Equivalents. Approximately 25% of pension assets are managed internally; Approximately 50% of the total AUM is managed internally. Almost all internally managed assets are in the fixed-income or cash-equivalent asset classes.

IA: Which consultants does the fund use for the various asset classes?
Cullen:
RVK is the only investment consultant. MBOI doesn’t use any specialized asset class consultants. RVK reports directly to the board, but its resources are leveraged by the investment staff at MBOI when conducting asset allocation analysis, reviews of investment policies, private asset class pacing, and due diligence on external investment managers. 

IA: How would you describe your investment philosophy?

Cullen: It is critical that the investment approach matches the investment objectives and risk tolerances for the overall mission. The investment process should be disciplined and focused on fundamentals yet have an ability to be opportunistic and aware of investors ability to overact to certain events. Last, asset allocation and the selection of investment strategies are critical, but the key to results is the implementation of ideas and the execution of decisions. 

IA: How does this philosophy or approach manifest itself in MBIO investment operations?

Cullen: In managing the pension assets at MBOI, we are primarily interested in achieving its 7.5% actuarial target over a long period of time. We identify asset allocation mixes using mean-variance analysis conducted by the consultant, but the actual asset allocation is also significantly influenced by the current macro environment, liquidity needs, and investment valuations. The manager structure and risk characteristics of the portfolio are driven by bottom-up, fundamentally focused, team decisions.

IA: What is your view on active versus passive management?

Cullen: Investing always requires active engagement, but it doesn’t always require active trading. Investment management should use any tools that will prudently achieve the objectives, including both active and index strategies.  Not all asset classes have a viable index that is investable, however, and even when a good index strategy is appropriate there are still active choices that need to be made regarding index composition and risk exposures.  “Passive management” might suggest a low level of risk or engagement, but any index strategy can be over/under valued and therefore should be subject to active evaluation. Approximately 70% of Montana’s pension assets are managed actively; and approximately 80% of total AUM managed actively.

IA: What has been the best experience in your career?

Cullen: Thankfully, I have had many experiences that I think were impactful. Of course, it is always good when you experience a good investment return, but my best experiences have been associated with learning, whether its from the actions of others, the decisions I have made, or the steps we have taken together. Early in my career, while part of a team managing mortgage derivative securities, I learned that the smartest people aren’t always right; you need to consider an exit strategy for an investment before you invest, and the environment can change rapidly turning the best performing security into the worst performing security much sooner than investment risk models would suggest.

IA: What was the worst experience in your career?

Cullen: My worst experience dealt with organizational decision-making, not because of what happened, but missing the experience of what might have happened. Early in my career, I was fortunate to join a great team of investors, client service/sales professionals, and executive leaders at The Boston Company Asset Management (TBCAM), a subsidiary at the time of Mellon Bank. Within two years of my starting, the leaders of the parent and subsidiary organizations couldn’t find manageable terms to move forward together. Although each of the firms and many of the professionals at TBCAM went on to greater things, I wonder what might have been if both organizations focused more on the long-term possibilities?

IA: In what part of the industry have you witnessed the most change?

Cullen: Within the investment industry there are always new things, whether it is strategies, products, people, or process improvements.  However, the core of what the industry does and how people make successful investment decisions remains the same as a few decades ago. Like many industries, technology has created the greatest change within the investment industry. The fact that it is easier to communicate, capture data, trade, dissect performance, and create reports has made certain aspects of what investors do much easier, but at the same time it is the same technology that has created more challenges with respect to market access and volatility, as well as data integrity and usefulness. I’m hopeful that focuses on appropriate governance and a fiduciary standard integrated with advancement in technology continue to help the industry evolve and improve.

IA: Are there any initiatives in which MBOI is currently engaged that you can share with readers?

Cullen: Internally, we are focused on improving our communications and decision-making process to assist in analyzing and deciding between disparate investments. We’re always looking for better ways to compare expected returns and risks across asset classes; in managing investments, judgment of people and the effectiveness of teams to work together to make decisions are critical. We are always searching for ways to assess the strengths and weaknesses of individuals, organizational structure, and the communication aspects of the investment process to improve our ability to implement investment strategies.

Externally, we continue to seek investment opportunities with firms that are willing to be held to the highest fiduciary standards, have a competitive skill set, have reasonable fees, and are willing to invest meaningful dollars in the same strategy. I’m referring to GPs that invest directly in their private funds along with LPs, and public market managers investing in their own strategies. We seek formal commitments from GPs regarding private investments; with public investments, we don’t seek a formal commitment, but we need to understand historical practices and future intentions. We also seek managers that cap their assets under management in favor of investing for returns.

IA: How about your personal life? Do you have a family and what do you like to do in your free time?

Cullen: My wife, Cathy, and I live in Helena. Though it’s Montana’s capital, it offers all the benefits of a small town. Our two adult children (a daughter and a son) live in Washington DC. As a family, we enjoy traveling together to new cities, sporting events, national parks, and visiting family and friends. This winter, we spent time in the Banff/Lake Louise area in Alberta, Canada.

Joe Cullen, cio, Montana Board of Investments. Oct. 2016 Marine Marathon, Washington DC

IA: Do you have any hobbies?

Cullen: My hobbies have evolved with the different stages of my life. Currently, I enjoy running long distances, hiking, and exploring small towns for their uniqueness and best places to eat.

IA: What was the last book you read?

Cullen: Here is Where; Discovering Americas Great Forgotten History, by Andrew Carroll. [“An eye-opening—and at times hilarious—Journey across America to find and explore unmarked historic sites where extraordinary moments occurred and remarkable individuals once lived.”] I appreciate learning from non-fiction books.  Primarily, I read about history, investments, biographies, and management/leadership.

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