Reporter Kaitlyn Mitchell recently spoke with Mansco Perry, longtime executive director and chief investment officer (CIO) of the $93.5 billion Minnesota State Board of Investment (MSBI). Perry has had a long career in financial analysis, and has overseen MSBI through excellent returns in his time with the fund—in 2017, the fund had a 15.1% return, one of the highest returns that year. Returns remained solid at 10.3% for the fiscal year ending June 30, 2018, again securing the fund’s spot in the first quartile of all North American pension funds. Perry’s time-tested techniques include keeping investment simple, maintaining a long-term view and fostering strong relationships with managers.
KM: What type of institution is MSBI?
MP: MSBI is an investment board that is responsible for managing the assets of three state-wide pension organizations –the Teachers’ Retirement Association, the Public Employees’ Retirement Association and the Minnesota State Retirement System; each has separate pension funds–there are nine funds collectively. Seventy percent of the assets we manage are for these retirement plans; in addition, we manage money for defined contribution-like (DC) plans, non-retirement endowment plans and state cash accounts. The assets for the three retirement associations are in defined benefit (DB) pension plans—we refer to them as the combined funds.
In most states, you’ll find an investment division as part of their pension system; in Minnesota, we’re responsible for investing the money for all statewide entities, and the pension plans are just the biggest chunk of money that we invest.
KM: What is your institutions’ asset allocation breakdown?
MP: The current asset allocation for the combined funds is: 1.6% of the portfolio is invested in cash versus a 2% target; 8.9% is in Treasuries versus an 8% target; 13.8% is in private markets versus a 25% target; 15.8% is in fixed income versus an 18% target; and 60% is invested into public equity versus a 47% target.
It will be a long time before we hit 25% in private equity because of the way we invest in that specific asset class. The discrepancy between our current asset allocations and targets is not major for a fund of our size—we don’t rebalance every day.
We go through a process and have policies that help us determine how we go about making investment decisions. We can’t put all of the money into private markets at one time, so the difference is put into public equity. We’re making more private market commitments; if we were to make a commitment of $100 million, in most cases the manager would draw down and invest over a three to five-year period. That’s why you see the large variances for the private markets and public equity relative to their target allocations.
KM: What is your fund’s funded status?
MP: The pension funds have a decent funded status. The MSBI is not the pension fund, we just manage the money for the various pension plans; they are collectively at about an 80% funded status. When managing the assets, the approach we’ve taken for the last several decades is: try to get the best return possible with prudent levels of risk.
The various pension plans that MSBI manages are collectively at around an 80% funded status.
KM: Tell me about your career path—How does one become the CIO of a mega state pension fund?
MP: I was born in Newark, New Jersey in 1953 and graduated high school in 1970. I went to Carleton College in Northfield, Minnesota. I graduated from Carleton in 1974 and after that attended the University of Chicago for business school and graduated in 1976. I returned to Minnesota to work and attend law school—I started my career as a financial analyst at Cargill in 1976 and attended law school at night. I graduated from the William Mitchell College of Law in January 1981 (it’s now called the Mitchell Hamlin College of Law).
After two years at Cargill, I went to work for a company called the Dayton Hudson Corporation, (which is now Target), where I was the manager of financial planning and analysis. I left Target in 1985. After that, for a short period of time I was at the Federal Reserve Bank of Minneapolis, and then in 1987 went to work for the Minnesota Department of Revenue. At both institutions I worked in planning and analysis-type jobs.
I came to work for the MSBI in 1990, where I started as an investment analyst. In 1998, I was promoted to assistant executive director for MSBI. In 2008, I left for a job as the CIO of the Maryland Retirement System. I was there until 2010, when I left to become the CIO of Macalester College, a college that had tried to recruit me when I was in high school; I was there until 2013 as CIO. In 2013, I came back to the State Board of Investment as its executive director and CIO.
KM: How do you characterize your investment philosophy?
MP: I keep it simple with basic investment approaches. What I learned from Howard Bicker, executive director at MSBI for 30 years, was: determine your approach, keep it simple and stay on top of what’s going on. I replaced him and also worked for him when I was here before. To develop our asset allocation, an understanding of the purpose of each asset class is required. I try to find good managers who have good strategies that they execute well.
At Cargill, I learned to take a long-term view with things and not to worry so much about quarterly performance, which can be difficult at times. This outlook requires the ability to stick with an approach through good and bad times, and sticking to the original purpose for which we started the endeavor. I got a pretty good grounding in this while at Target, which had excellent financial management systems.
I’ve learned to take a long-term view and not to worry so much about quarterly performance.
KM: Who are MSBI’s consultants and managers?
MP: Our consultants are AON and Pension Consulting Alliance. We have more than 100 managers, including BlackRock, Blackstone, KKR, Goldman Sachs, Neuberger Berman and Western Asset. We have multiple managers in each asset class, and manage by trying to determine the role that each class plays in the portfolio. We seek managers who enable us to achieve our objectives in each asset class.
For a fund of our size, 100 managers is not a lot—when you have active management programs, you end up having quite a few managers to handle risk. Most of the managers are in private markets; there are 20 in domestic equity and 20 in international equity with eight to nine bond managers. We have lots of private equity, private debt, energy and real estate managers. We have 10% fewer managers on the public side which is five or six less than a couple of years ago.
KM: What has been the best experience in your career?
MP: I’ve had the pleasure of working for some really good people since I started in the investment side of finance in 1990. Coming to work for Howard Bicker at the MSBI, I got broad exposure to various asset classes and operational aspects of an institutional investment organization. At the Maryland fund, I received exceptional support from the Board and my colleagues, as we navigated through the financial crisis of 2008. At Macalester College, my Investment Committee Chair Jeff Larson challenged me to focus less on what we were investing in and appreciate more why we invest and the importance of the role the endowment played in enabling the College to achieve its mission. Here at MSBI I’m trying to fulfill the promise made to people who worked in public service for the state of Minnesota to provide their benefits in retirement. I’m especially proud that in each of these organizations, we achieved first quartile results.
KM: What was the worst experience in your career?
MP: I’ve learned that people, myself included, will make mistakes, and sometimes things don’t work out as expected. People have different perspectives, and we don’t always reach the same conclusions. We’ve had managers that don’t work out, but I wouldn’t consider those mistakes. If we could all project what the markets will do, we wouldn’t have portfolio problems. When you come to grips with the fact that some things don’t always go your way, it makes it a lot easier to go forward if you accept that reality. But it also doesn’t hurt to be the boss!
It doesn’t hurt to be the boss!
KM: In what part of the industry have you witnessed the most change?
MP: I’ve been in the industry pushing 30 years, and there’s always a plethora of new ideas and products. However, the basics haven’t really changed. An investor can really only do two things: they can own assets or lend money to entities. You want to own things that are going to give you a solid return and provide growth or lend money to things that give you back what you lent, plus an appropriate return for the risk you took in lending that money. That’s pretty simply what we’re here to do. A lot of smart people have come up with all sorts of ways to do this and package it as a product, but the basics are what I’m looking for. I’ll hire a manager that I have confidence will invest in assets that generate good returns. I try to give money to debt managers that make good judgements.
KM: What aspect of the industry would you most like to see changed and why?
MP: I’d like to see better fee alignments between asset allocators/owners like myself and asset managers. Fee transparency has evolved quite a bit, but there’s still a ways to go. My belief is that if you’re not getting what you want from a manager, there is no one holding a gun to your head saying that you have to stay there. I do not focus only on fees—I focus on having good partners as managers. Most public pension funds are resource-challenged, and managers need to be willing to help investment organizations like ourselves by providing information and helping us think through problems—this is not always to their benefit, but if they do their job the partnership will be long.
If you’re not getting what you want from a manager, there is no one holding a gun to your head saying that you have to stay there.
KM: Are you married and do you have children?
MP: I’ve been married 24 years. My wife Nancy was a computer program manager, and when I took the job in Maryland she resigned her job when we decided to move in 2008. But then everything crashed and we never sold our house in Minnesota, so I commuted to Maryland for two-and-a-half years while my family stayed in Minnesota. Despite the personal hardship, Maryland was a fantastic professional experience.
My wife and I adopted two girls from China – the youngest is 16 and a junior in high school, the oldest is 18 and about to attend Lawrence University in Wisconsin. I hope that they will become good citizens with happy lives and contribute to society. My family motivates me to continue doing a good job.
KM: Do you have any hobbies?
MP: I collect baseball cards and coins—I have spent most of my life here in Minnesota, and I love it, but I’m just a kid from Newark and am still a big, big New York Yankees fan!
I’m just a kid from Newark–I’m still a BIG Yankees fan!
KM: What are you reading?
MP: I’m about to read Bound for Gold by William Martin, which is a historical novel about the American gold rush. I like novels based on history; I was a history major in college. Also, I’m currently in the middle of a book about the events leading up to the 2012 presidential election between Barack Obama and Mitt Romney, called The Stranger by Chuck Todd. I also like John Grisham’s legal thrillers, James Bond novels and books about baseball history.
KM: Where are you travelling to next?
MP: I’m taking off a few weeks in August to go to Montreal with my family.