Changing times makes finding transformative talent more important than ever – and the competition is everywhere.
Competition is intensifying among corporate and public pension funds vying to attract the best investment talent they can afford.
With assumed rates of return likely to remain low in the foreseeable future for all pension funds and scant chance of public pension plans receiving contributions from government sources to make up any shortfall, sources said the capability of in-house investment teams to achieve the highest possible return is on the line.
“The competition between pension funds for investment personnel, especially public plans, is very intense. They all are looking for better staff with higher skill sets to accomplish the very difficult job of meeting investment expectations,” said Frederick “Rick” Funston, managing partner, Funston Advisory Services LLC, Bloomfield, Mich., which provides fiduciary advice to pension funds.
In addition to upgrading and replacing talent in traditional areas such as manager selection, due diligence, asset allocation and portfolio construction, some sponsors are searching for people with new skill sets that increase the chance of their plan meeting and exceeding investment expectations.
Next-generation roles that plan sponsors — especially large public funds — seek to fill are data specialists with experience in quantitative processes, big data analysis, machine learning and other applications of artificial intelligence.
Funds hiring in this area include the C$368.5 billion ($276.2 billion) Canada Pension Plan Investment Board, Toronto; the C$193.9 billion ($145.3 billion) Ontario Teachers’ Pension Plan, Toronto; and the $153 billion Teacher Retirement System of Texas, Austin.
Dedicated inclusivity/equity officers also are in high demand to oversee and advance enterprise-wide efforts to diversify pension fund organizations, with Ontario Teachers and Texas Teachers searching now for people to fill the role.
The need for sophisticated portfolio risk management processes has plan sponsors hunting for candidates with hands-on experience using Aladdin, BlackRock Inc.’s popular risk-management system, and other options.
Chicago-based Exelon Corp., for example, recently hired a new risk officer for its $17.8 billion defined benefit plan and $9.3 billion defined contribution plan. The $34 billion Indiana Public Retirement System, Indianapolis, continued the ongoing build-out of its risk management team with the recent addition of an investment operations officer, which has freed other risk officers to focus more on investments.From one to another
For other pension funds seeking “traditional skill sets” rather than cutting-edge machine-learning adepts, the source of most senior-level candidates is from other pension funds.
That’s because the fiduciary aspect of managing pension funds is “top of mind for many employers,” said Dennis Simmons, executive director, Committee on Investment of Employee Benefit Assets Inc., Washington, an industry association for corporate pension plans.
To a great extent, Mr. Simmons said most defined benefit plans prefer to recruit investment professionals with “significant history and experience with the fiduciary issues inherent in managing money.”
However, the difficulty many public and private fund sponsors have in attracting promising senior executives and entry-level employees is twofold — compensation and a fund’s reputation as a sophisticated investor, said recruiter Michael D. Kennedy, an Atlanta-based senior client partner at Korn/Ferry International Inc.
Mr. Kennedy said the compensation differential between pension fund investment management and money managers is an ever-present issue in recruiting top talent, but he noted that a cadre of large pension funds have overcome the problem to some extent by adding performance incentive pay to overall compensation.
Sources pointed to a group of sponsors, among others, whose incentive plans are an enticing lure for potential recruits. Besides the Texas Teachers fund and two Canadian plans, the list includes the $358.4 billion California Public Employees’ Retirement System, Sacramento, the $226.5 billion California State Teachers’ Retirement System, West Sacramento; and State of Wisconsin Investment Board, Madison, which manages $110.4 billion in state funds, including $100.7 billion in the State of Wisconsin Retirement System.
These funds also meet the other criteria candidates are looking for, namely, a reputation for having a sophisticated, creative investment culture spanning a broad spectrum of asset classes, where even junior investment staff may be given a lot of responsibility in an area like private equity, Korn/Ferry’s Mr. Kennedy said.
CalSTRS is having less trouble attracting recruits because it does offer a salary that’s purposefully competitive, said Scott Chan, the fund’s deputy CIO, in an email.
“Public-sector salary levels are typically the most common obstacle when trying to recruit and retain investment professionals, particularly in today’s booming economy,” Mr. Chan added.
But CalSTRS’ competitive compensation package — base salary plus annual incentive — helps the fund be an “employer of choice” for high-caliber investment officers, he said.
CalSTRS employees are eligible for incentive opportunities based on quantitative measures, specifically investment performance above set benchmarks over a three-year period, as well as qualitative factors including personal evaluation, said a report from CalSTRS compensation committee presented at a Nov. 7 board meeting.
For the fiscal year ended June 30, 2018, the three-year returns of the fund’s corporate governance, fixed income, inflation-sensitive, infrastructure, global equity, private equity and real estate all outperformed their respective benchmarks, resulting in $1.2 billion of excess returns based on “specific staff decisions” net of fees, the report said.
The incentive pool split among eligible personnel totaled $5.35 million or 0.45% of excess returns as of June 30, excluding the fund’s chief investment officer and chief executive officer, who have separate compensation packages.
Mr. Chan added that CalSTRS bases its salary and incentive package on the median level of similar packages from other large, complex North American institutional investors, corporate plan sponsors and money managers.
An attractive compensation package likely will help CalSTRS to attract the 50-plus new investment employees in intends to hire over the next several years as it continues to build out its internal investment management capabilities. Mr. Chan added that the new positions will “require a higher level of investment skill and (commensurate) compensation.”