There is a quiet war for investment talent, and public pension funds are often disadvantaged at attracting and retaining staff. Given their inherent relationship with government entities, these investment offices can be more constrained than other institution types in terms of compensation and investment strategies.
“The war for talent is probably the biggest challenge,” said David Villa, chief investor officer at the State of Wisconsin Investment Board, in a November 2016 interview. “The talent comes into the office early in the morning, and it leaves in the evening. I worry about it coming back every morning. My talent is mobile and highly skilled. The war for talent is not just about attracting, it’s about developing and retaining.”
Although public pension funds may not offer salaries as high as the private sector, there are four elements that commonly attract top-tier talent to these positions, according to interviews with 12 chief investment officers at public pension funds located across the United States.
#1: Work-Life Balance
Long hours, frequent travel and high stress are commonly associated with the investment world. However, public pension CIOs say their career paths offer a more balanced life.
“One of the aspects that attracts talented people to pensions is the quality of life,” said Jonathan Grabel, chief investment officer at Los Angeles County Employees Retirement Association*, in a January 2016 interview.
Grabel worked in private equity previously in his career, which was a far more consuming position. “My hours are very different today compared to when I was working in New York in private equity,” he said. “I get to spend more time with my family now than before.“
One must determine if their life goal is to build wealth or build a balanced life, said Christopher Ailman, chief investment officer at California State Teachers’ Retirement System, which manages $188 billion as of June 30, 2016.
“[At pensions,] you have the fun and the challenge of the investment business, but I always like to point out that you can also coach your son's Little League team or your daughter's soccer team,” Ailman said, in a January 2016 interview. “You can attend their sixth grade graduation. You can see their high school sport games. You don't have to miss all the milestones in life.”
The Massachusetts Pension Reserves Investment Management Board, or Mass PRIM, is flexible with its staff to allow them to pursue other passions outside of the office.
“[My director of hedge funds is] a professor and, if he needs to leave at three o'clock to go teach his class, I've allowed him to do that,” said Michael Trotsky, Mass PRIM chief investment officer, in a January 2016 interview.
#2: Serving The Public
The institution’s mission is a driving motivator for many pension fund investors. Many chief investment officers describe their jobs as a true privilege to serve American retirees.
“I think retirement security is critical to our society, especially with individuals living longer,” said Dhvani Shah, chief investment officer at the Illinois Municipal Retirement Fund, in a January 2016 interview. “Pension plans are an important part of retirement security, and I like that aspect of my job.”
John Skjervem, chief investment officer at Oregon State Treasury, emphasizes that working for a pension allows him to focus more on public service rather than earning targets. He refers to pensions as a “purer” version of fiduciary responsibility.
“We can make investment decisions based upon entirely what we think is best for the plan and for beneficiaries, while not being pressured by earning targets, product quotas or things of that nature,” Skjervem said, in an October 2017 interview. “We don't have to sell anything. We don't have to try to win clients, keep clients, meet an earnings' goal or beat a sales quota.”
Girard Miller, who retired as CIO from Orange County Employees Retirement System in January 2017, best summed up this sentiment: “I came here first and foremost to perform public service. That's compelling in my case. It’s how I started my career, and it's how I intend to end it. This is a career capper and an opportunity to give back and to make a difference, leaving a legacy ultimately. I take it as a solemn responsibility to people whose lives that are affected by the pension plan as retirees, and to my local community that foots most of the bills here.”
#3: Geography
The geographic location of an investment can work for or against an investment office. As one chief investment officer put it, geography is an important variable in the “career choice equation.” This is particularly true for states that are less densely populated, like Wyoming, Nevada and New Mexico.
“I think one of the other things that attracts people to PERA of New Mexico is the geography; we are based in Santa Fe, and it is a pretty special place. I can drive 10 miles from my house and be up in the mountains. It's a recreation paradise here. In addition to the outdoors, there are great people, great food and great art,” said Grabel, who led the New Mexico fund for over 3 years before joining Los Angeles in April 2017.
Steve Edmundson, chief investment officer at Nevada PERS, said geography and scenery is a huge draw for him. And this is coming from the one-man investment team that helped generate 5- and 10-year returns of 9.5 percent and 5.9 percent (as of June 20, 2017), which bested some of the nation’s larger public pensions.
“Here in northern Nevada we have beautiful weather and kind of a small town in Carson City, Nevada. To be able to live in a place like this and have the opportunity to have a really engaging and interesting job, I think is a really big benefit and draw for me,” said Edmundson, in an October 2017 interview.
The Chief Investment Officer at New Mexico Educational Retirement Board, Bob Jacksha, said location makes for a valuable trade off when choosing an institution to work for.
“New Mexico does offer certain lifestyle advantages. It’s a nice climate, moderate cost of living, not crowded, a lot of opportunities if you like to be outdoors. In terms of a place to be, it’s a good place,” he said.
Sam Masoudi, chief investment officer at Wyoming Retirement System, said location may act as a repellent to individuals within the industry, and for Wyoming, sourcing talent could be a bit tricky.
“Wyoming doesn't have a financial industry, so it's a little bit harder to attract people here,” said Masoudi. “The legislature has been very supportive. They've allowed us to hire new people and given us some more flexibility with compensation.”
#4: Team Dynamics
Public pensions are making an effort to improve the cultural framework within their investment offices by promoting continued education inside and outside the workplace and by encouraging diversity throughout the organization.
Michael Trotsky encouraged his deputy CIO, who led public markets, to transition to the Mass PRIM private equity team.
“This is the kind of thing that I hope, and so far so good, makes the job more interesting to people, even though I may not be able to pay them what the private sector pays,” he said in a January 2016 interview.
Dhvani Shah, on the other hand, facilitates "professional development” of her staff through the CFA and CAIA programs.
Christopher Ailman adds to this notion by saying that gender and ethnicity equality is a huge plus for up-and-coming talent that choose to join a public pension.
“To me, when we talk about recruiting people we talk about our diversity,” said CalSTRS’ Ailman. “Again, the fact that we have such gender parity and ethnic diversity, that's very rare in Wall Street and attractive to many people.”
In order to recruit more women, Mass Prim expanded its paid parental leave program to 12 weeks, from four weeks. “We're trying to think of everything to make PRIM a good lifestyle choice as well,” Trotsky said.
David Villa wants his staff to be heard, to take ownership of investment decisions and have an entrepreneurial spirit. “There are probably a handful of things that are part of the secret sauce, and if you exclude any one of those ingredients, you don't get a good outcome,” he said.
“I don't want to be a training ground for Wall Street,” Villa said. “We have to create an environment where people enjoy working with other talented and skilled investors. It’s also important to have the right infrastructure, support and culture.”
Read our previous Trusted Answers series here.
*At the time of the interview, Jon Grabel was chief investment officer at Public Employees Retirement Association of New Mexico (PERA). He became chief investment officer of Los Angeles County Employees Retirement Association in April 2017.
