Elizabeth Burton was hired as chief investment officer by the $16.8 billion Employees’ Retirement System of the State of Hawaii (ERS) at the end of July 2018, and reported for her first day of work on October 1. Her first interview with the fund was in late spring, several months after former CIO Vijoy Chatterjy departed the role. Institutional Allocator Reporter Kaitlyn Mitchell spent an hour with Burton and learned much about this multi-tasker’s colorful life experiences and how she has become a public fund CIO at a mere 36 years young. Burton hails directly from a role as a managing director in the quantitative strategies group at the $55 billion Maryland State Retirement and Pension System (MSRA).
IA: You’re less than a month into your new job. What’s shaking?
EB: The ERS team did a fantastic job during the seven months since the former CIO’s departure—it’s tough to lose a CIO, and they stayed on top of pacing across the plan, which is tough with a lean organization. They did not seem to miss a beat. In general the guidance of Executive Director Thom Williams of ERS and then-acting CIO Howard Hodel kept the Plan running like a well-oiled machine!
IA: What consultant does ERS use?
EB: Pension Consulting Alliance (PCA) General Consultants. They recommend asset allocation to the board of trustees. We have around 50-60 “foundational” managers across public markets, private equity, and real estate. ERS has the appropriate amount of managers for its asset and internal investment team size, and it’s been smart in allocating where it makes sense and not overlapping exposures. At Maryland SRA, the CIO and Board worked with the consultant Meketa.
IA: How did you make the leap from Maryland to Hawaii?
EB: Hawaii is a risk-based plan. And I believe it was looking for someone with a risk focus who had also managed assets—it was a good fit. In Maryland, I had a view of the entire portfolio while running its risk strategy. Andy Palmer, the CIO, and Robert Burd, the deputy CIO, were willing to show me the ropes and all 15 team members had the opportunity to be involved on any investment that we were interested in. I never felt like I had blinders on. It was one of those circumstances where I wasn’t looking to leave at all—I have really strong, positive feelings for the Maryland team. The Hawaii opportunity was too good to be true—there are only so many public funds, it has an experienced, smart investment team, the ED is talented, and of course, the location. The CIO community is small—even when I was a managing director, several CIOs throughout the country were very helpful to me.
IA: What is your institutions’ asset allocation breakdown?
EB: In 2014, Hawaii ERS moved to a risk-based, functional asset allocation framework with each class designed to achieve a certain goal or to gain exposure to specific macroeconomic risks. For example, Broad Growth consists of assets that are exposed to changes in global growth and corporate profitability (growth risk). Our asset allocation as of June 30th is as follows: 74.7% broad growth, 12.9% crisis risk offset, 8.3% principal protection, 3.1% real return, 0.2% opportunities, and 0.9% other.
IA: How has your life path led to becoming a CIO?
EB: I was born in Manhattan, New York. My family moved to York, Pennsylvania in the early ‘80s and then to a horse and beef cattle farm outside of Charlottesville, Virginia in the late ‘80s, where I swept the barn and my sister watered the cows as chores—but I could jump on a horse whenever I wanted, and went to horse shows a few times per year. I always liked stats and math—my dad taught my sister and me calculus in the fifth grade. During that time, my dad worked in a variety of roles, including as a consultant to the American Stock Exchange, the president of Rothschild Financial Services, the head of investment banking and public finance and the board of directors at Interstate Johnson Lane and the member investment advisory committee of the Virginia Retirement System.
I attended boarding school in Pennsylvania for my last two years of high school, and my parents sold the farm around that time. I then attended a small liberal arts college, Washington and Lee University in Lexington, Virginia, where I double majored in politics and French. I wanted to be local for my sister’s senior year of high school. My dad worked on Wall Street for a couple of decades, but he was always a professor of economics, following his PhD from Northwestern University in 1971. He taught at Cornell, Rice, York and currently teaches at the University of Virginia. He began his Wall Street career in 1975. My mother is a full-time mom and part-time businesswoman.
My dad used to take me in a bassinet while he was working as a senior v.p. at Smith Barney—my sister and I were born just 13 months apart, and my dad occasionally took me to work, placing my carrier under his desk. When I asked why, he told me that he wanted to spend more time with me. Nowadays, he takes his grandchildren to board meetings.
My dad used to take me in a bassinet while he was working as a senior v.p. at Smith Barney.
The summer before my junior year of college, my dad brought me along to a conference in California, where he was giving a talk on hedge funds. On the plane, he had to explain to me what a basis point was. After that, I tried out a fund of funds internship during my junior year at Santa Barbara Alpha Strategies. Fund of funds are a step removed from the market, and I wanted direct exposure. I ended up getting a job in San Francisco through a connection, trading mortgage-backed securities (MBS) at Tuttle Risk Management Services; I hedged mortgage pipelines for banks, most of which are not around now post-credit crisis. The hours were great, being on the West Coast, but I didn’t want to be a trader.
I always wanted to go to business school, so after a few years at Octane I decided to go back. I spent two years at the University of Chicago I, fully intending to continue working for Octane. But I graduated in 2011 after the crisis. I had met my now husband, Mike Cottet, in 2009 while visiting Baltimore, Maryland and moved there to live closer to him after graduation. I decided to try something other than hedge funds and got a job as a consultant with First Annapolis Consulting, a payments consulting and mergers and acquisitions (M&A) firm, where I learned more about the equity side of the business. I ultimately decided that I’m not a long-term payments person, however. I later worked with Criterion Economics on econometric modeling and analysis—I’ve always been interested in economics, given my dad’s profession.
In March 2013, I created my own LLC, William Street Advisory to continue work in economic consulting. I started my family in 2014, and wanted to cut down on travel so I started looking for something more local to Baltimore. In 2016, an opening became available at Maryland State Retirement and Pension System, and I jumped for a chance at managing both the hedge fund portfolio and the total fund’s risk as a senior investment analyst. I interviewed there one week after I had my daughter—I hadn’t slept in months. After seven months there, I was promoted to managing director of the quant strategies group. By that time I had experience trading debt securities (Tuttle), experience in equities (First Annapolis), experience in hedge funds (Santa Barbara Alpha Strategies and Octane), risk (Santa Barbara, Tuttle, Octane, First Annapolis, economic consulting) and in translating complex concepts for stakeholders. I feel like I have a very different and non-traditional but well-rounded career path. I was named as one of CIO Magazine’s “Forty Under Forty” during my time there.IA: How would you characterize your investment philosophy?
EB: I try to stay away from fads. I generally try to invest along sound, time-tested economic principles. When dealing with the assets of retirees, I always take a long-term view. I have a bit of a problem with some smart beta strategies, the reason being that they rely heavily on back-tests and are highly sensitive to model inputs—some I’ve seen are not based on proven economic theory.
IA: What was the best experience in your career?
EB: Getting this job. Throughout my career, I have found that those in the allocator community, despite being stressed for resources and people, really support each other. This was not present in my other jobs, where you had to be super competitive.
IA: What has been the worst experience in your career?
EB: In ’07 and ’08, a lot of my friends in finance got laid off. Since my bonus made up a good portion of my pay, for a while I worried if I was not going to have rent money.
My sister, Lindsay Burton, and father, Ed Burton, had both worked with Lehman Brothers prior to the crisis (although my father was not an employee; he had previously contracted to them)—luckily, my sister had already left to work at a secondary private equity shop. She now owns Kayo Conference Series, a women’s private equity, energy, power, credit, venture and real estate conference series on the East Coast. She’s the real deal.
IA: What’s it like being a powerful woman in finance?
EB: It’s exciting. Throughout my career I’ve been supported by both men and women—including here at Hawaii, both at the staff and board level. It’s wonderful to see women in top roles across all industries. I had the privilege of attending the Wahine Forum (Wahine means woman in Hawaiian) here in Hawaii a week ago and was blown away by the caliber of attendees and speakers. The energy in the room was exciting—from both men and women alike.
IA: In what part of the industry have you witnessed the most change?
EB: The hedge fund industry is very different from 2004—it’s hard to source alpha and hard on investors and managers to figure out the economics. I’m not in the camp that the days of hedge funds are over. As my dad would say, if the cows have eaten all of the grass in one pasture, move them to another.
IA: What aspect or element of the industry would you most like to see changed and why?
EB: There is so much great technology in the hands of the managers we work with. I would really like to see a bigger focus on getting technology into the hands of allocators. Some things are pretty cheap. Coding, for example, is free to learn. We need to find a way to get allocators access to good tools at an affordable price. Most young people coming into finance now know how to code using Python and MATLAB. Budgets are tight at public pensions, but there needs to be more spend on tech in-house to keep up.
I’m not in the camp that the days of hedge funds are over.
IA: What is your fund’s funded status?
EB: ERS is currently 55% funded, based on the last study analysis of liabilities.
IA: What are your plans to address the underfunded status?
EB: There’s no easy answer. My job is to implement the asset allocation approved by the Board. Our risk-focused plans is designed so that we may sacrifice some upside performance for better protection on the downside; we also have to care more about potential downside than some other plans with a higher funded status. In 2016, the Board of Trustees lowered the assumed rate of return to 7% from 7.55%. Although we are long-term investors, we review our assumed rate of return regularly, keeping in mind what the market environment may look like over the medium-term and how that affects our ability to fund our liabilities. At the same time, we don’t want to be tinkering with target returns and asset allocation constantly because it’s expensive to the portfolio. For example, you churn a lot of fees buying and selling assets. It’s better to have a long-term view, particularly as it’s difficult to time the markets.
IA: Is Hawaii ERS involved in ESG initiatives?
EB: Our executive director attended the PRI in person in September 2018, and in May 2018 the ERS joined the UN PRI. We also have one investment staff member who is motoring how to best execute on ESG strategies. Our primary focus on the investment team remains to achieve our target rate of return.
We have to care more about potential downside than other plans with a higher funded status.
IA: Switching gears, who makes up your family?
EB: My husband Mike moved with me to Hawaii and is currently working remotely with his employer back in Maryland, as a vice president of sales for the Agora Companies. Our kids, a son and daughter, are four and two years old. My son is a beach bum; he’ll be a surfer one day. They both love their new school and love being outside. Also, my commute is not as long, so I get to see them more now.
IA: What are your hobbies?
EB: Mike and I are very active. He likes to cycle and I like to surf. He also does any kind of water sport and we do a lot of hiking outdoors here. We’ve been going to the beach with flashlights almost every night to look for sand crabs with the kids.
The food prices are higher here on the islands, so we’ve been doing a lot more cooking. There’s a lot of food sharing here at the office—in fact, I just won third place in the ERS chili cook-off with a vegetarian recipe!
IA: What are you reading?
EB: Lately, I’ve been reading boring finance books with titles like “Build a Better Vision Statement” or “Python for Finance”. Sometimes I wish I was in the matrix and could just download those books instead of reading them (laughs).
I’m also reading a Hawaii-based book called Broken Trust by Samuel P King. It’s about Princess Bernice Pauahi Bishop, the largest landowner and richest woman in the Hawaiian Kingdom until her death in 1884, when she entrusted her property to five trustees to create an institution to benefit the local schools—and how it all went sour in 1997 when the trust was charged with gross incompetence and massive trust abuse.
IA: What are your next travel plans?
EB: We’re staying local for the next year. It’s hard to fly with a two- and a four-year-old! Our in-laws will come to visit and we plan to visit the neighboring islands together.