Of late, many U.S. public pension funds have been actively seeking ways to boost the compensation of their chief investment officers (CIO). But most are hesitant to combine the roles of executive director (ED) and CIO, according to investment professionals, because the skills required for each position can be very different.
Alaska Dips a Toe in the Water
In July, the $65 billion Alaska Permanent Fund Corporation (APFC) considered changes to its organizational structure after chief investment officer Russell Read left after just over a year at the fund, for a new job in London. Marcus Frampton took over as acting CIO.
The fund briefly considered consolidating the CIO and CEO roles, according to fund documents, a spokesperson for the fund confirmed, but promptly reversed course for reasons not disclosed. “The current CEO Angela Rodell, doesn’t have enough investment experience to be a CIO,” said Charles Skorina, principal of an eponymous executive recruitment firm that specializes in placing chief investment officers, “but, at the same time, AFPC does not pay a competitive salary for the CIO position, given the fund’s size and geographic location. Consolidating positions is a bureaucratic way of being able to pay more—they’re in Alaska, for goodness’ sake. They need to find a way to pay more money,” he said.
When contacted for comment, Paulyn Swanson, spokeswoman for the AFPC said in an email: “Please note that APFC’s Board of Trustees is not moving forward with consolidating the CEO and CIO roles. Trustees continue to work to ensure that APFC has a fair and competitive compensation structure for APFC’s staff. APFC’s board of trustees appointed a subcommittee to commence the search, and the fund has no further comment on the process.”
The APFC’s next Board of Trustees meeting is scheduled for September 26, Swanson added.
Why Institutions Opt to Stay the Same
The financial role of a CIO differs vastly from the administrative role of an executive director, president or CEO. “Most investment professionals really enjoy being in the markets—even if they’re just a manager of managers,” according to Dan Cummings, senior v.p. at recruitment firm EFL Associates.
CIOs are more likely to have an education in investments and hold a CFA or an MBA, whereas a CEO is more likely to have management expertise. “The CEO may not be cut out for a CIO position, and vice versa—the jobs require two different personality types,” stated Keith Brainard, research director at the National Association of State Retirement Administrators.
There are additional reasons that large-scale public pensions may not want to put all of their eggs into one basket, so to speak. “If all responsibility is put into one position and that person walks out the door, you’ve lost a lot; with two people, you can continue the operation a bit better,” Brainard said.
If all responsibility is put into one position and that person walks out the door, you’ve lost a lot; with two people, you can continue the operation a bit better.
In the case of some funds, such as Minnesota State Board of Investments (MSBI), where the benefits are administered separately from the investment office,the ED and CIO titles are held by a single individual, while at other funds, such as State of Wisconsin Investment Board (SWIB), the investment operation has separate individuals as ED and CIO. “Most large pension funds in the U.S. have both theinvestment and administrative functions in a single government agency where, given the combined mandates of those two functions, there is generally a separate CIO and ED, noting that there are a host of different titles applied depending upon the circumstances,” observed Tim Barron, senior v.p. and CIO at Segal Marco Advisors.
For the most part, only much smaller funds have successfully consolidated top roles, Cummings said. “Smaller funds can’t always afford to hire all positions,” Brainard added.
The following are examples of institutions where the CIO and ED, CEO or president roles are either combined or shared (all endowments or institutions that have a smaller AUM):
- Andrew K. Golden is the president of Princeton University Investment Company, which has $22.2 billion in assets under management (AUM). “Andy is the president, but in fact he’s also the CIO—he has the investment experience,” Skorina told IA. There is no separate CIO at Princeton.
- Robert Wallace is the CEO at Stanford University (2017 AUM $24.8 billion). “Robert performs the duties of CIO, but he’s called the CEO,” Skorina added. Stanford also does not have a separate CIO.
- Seth Alexander is president at MIT Investment Management Company (MITIMCo), Massachusetts Institute of Technology (2017 AUM $14.8 billion). “Seth performs the duties of the CIO, yet is officially called the president,” continued Skorina.
- Narv Narvekar is the CEO at Harvard Management Company (2017 AUM $37.1 billion) and Rick Slocum is the CIO. “Narv was previously the CEO at Columbia University, and brought in somebody he knew in the past as the CIO, which he also did with Rick as CIO at Harvard,” said Skorina.
- David F. Swensenhas been the chief investment officer at Yale University Endowment (2017 AUM $27.2 billion) since 1985. Mr. Swensen, along with his strong number two Dean Takahashi, effectively COO, have managed the endowment for over thirty years. Mr. Swensen does not hold the title of president. “He never worried about a title—he is called anything he wants,” said Skorina.
- Peter Ammon is the chief investment officer at the University of Pennsylvania (2017 AUM $12.2 billion), also performing administrative duties.
“Andy, Narv, Rob and Seth do not have a CIO title, but they are by background senior investment officers—so why do they carry the title they do? For management effectiveness, prestige and compensation,” opined Skorina.
Several executives have departed high-profile state pension funds this year, and luring attractive candidates becomes difficult when the private sector offers so much more compensation-wise. “Paying higher salaries to the ED and the CIO at public funds is one of the cheapest ways you can invest for the future of your fund,” said Barron. “The value that skilled investment officers can add to the state is dramatic—they’re worth every penny and then some.”