Anne Marie-Fink is the chief investment officer at the Employee Retirement System of Rhode Island, which has more than $7 billion in assets under management. Fink holds a bachelor of arts in humanities from Yale University and an MBA from Columbia University. As CIO, Fink oversees a staff of nine and the overall pension portfolio’s investing strategy across all major asset classes.
Ms. Fink was recently named to Trusted Insight’s ranked list of the Top 30 CIOs With Ivy League Education. She graciously spoke with Trusted Insight on Oct. 29. The following interview has been edited and condensced for clarity.
Trusted Insight: You spent more than 15 years at JPMorgan and nearly five of those years focusing on hedge funds. What inspired you to make the switch to the pension industry?
Anne-Marie Fink: It was a combination of the opportunity to look at a broader portfolio and really think about how all the different pieces of the portfolio fit together and not just a few of the asset classes. Plus the opportunity to work on something meaningful that makes a difference in people’s lives.
Trusted Insight: Let’s talk about your education. You have a BA in Humanities from Yale and MBA from Columbia. Of course, the MBA will have played a large part in where you are today, but a Humanities degree is a now-underappreciated area of study. How has your Humanities degree, your time at Yale, informed your decision making process at the pension?
Anne-Marie Fink: It’s been enormously helpful, mostly in the ability to synthesize. The way the humanities degree was organized at Yale, we would study different eras of history, mostly European history, and look at them through different prisms or disciplines -- through history, literature, philosophy and art. It required thinking about the common threads that you find across all of those different disciplines.
That is similar to what you do in investing. You look at what’s happening with rates, in equities, in macroeconomic indicators and try to pull together a cohesive view of the markets and where opportunities lie.
Trusted Insight: What is your investment philosophy, and how has that been informed by your time at Yale?
Anne-Marie Fink: I would go back to what I said earlier about having a very broad view. Particularly at Yale, but even at Columbia, the ability to learn very broadly and think about a variety of disciplines and synthesize things in a pure liberal arts way. So rather than thinking about applied knowledge, just thinking about learning, researching and analyzing in a very broad way has been enormously helpful in being able to assess investments.
Trusted Insight: Tell me about your investment team and how they differ from other pension funds.
Anne-Marie Fink: We are a very lean team internally and then we leverage our consultants as an extension of staff. It works reasonably well because we, as the lean team, can look at investments at a high level, with a big-picture view, and then dive deep as needed or in the places where we want to go more in-depth. At the same time, we have our consultants who tend to be deeper in various areas, and they can bubble opportunities up to us. It gives us a top-down, bottom-up combination that works reasonably well.
Trusted Insight: Tell me about the construction of your portfolio and how it meets your needs in this tough investment climate.
Anne-Marie Fink: We have a particularly difficult investment challenge. Our targeted rate of return is 7.5%. At the same time, the pension fund is only a little bit more than 60% funded. So we need high returns, and we can’t afford to lose any money. Also we have a very lean team, so we are resource- and time-constrained. That is our challenge.
The way we’ve solved that multi-faceted challenge is with a portfolio that is roughly half in equities. This long-only allocation is all passive, mostly with market cap-weighted indexes and and some that are factor weighted. That is a large chunk of the portfolio that we can put to work efficiently, both in terms of fees that we pay and staff time required.
Another quarter or so of our portfolio is in fixed income. 15% of the total portfolio, so most of the fixed income, is in a Barclays Agg-targeted portfolio. There we are really looking for the downside protection. It’s very constrained mandate and really focused on Treasuries and agencies. We have a little bit in TIPS and a little bit in loans. The TIPS give us a little inflation protection, and the loans protect us from rate rises and give some credit exposure.
We’ve tried to be pretty thoughtful and concentrated on the particular positions we are taking with each part of our portfolio. What do I mean by that? Our Barclays Agg is really focused on Treasuries. More core bond funds layer in a lot of credit, and we separate that out. So we have our Barclays Agg, which is very Treasuries oriented, and we have credit through loans and some short-dated high yield, where we minimize the duration out and focus on credit.
The last part of the portfolio is in alternatives. We have about 15% in hedge funds. We specifically look for hedge funds that are not beta oriented. They generate returns more from alpha. Within the hedge fund universe, you have a full spectrum. At one end of the spectrum is the shoot-the-lights out, and we are not doing that. We are sort of at the other end of the spectrum, where we seek regular, steady returns generated through security selection, both long and short.
We have another 7% or so in private equity and our private equity allocation includes basically everything private. We’ve got private equity, private debt and venture in that category. Rounding out the portfolio, we have about 6% in real estate and 2%-to-3% in infrastructure.
Going back to the investment challenge, not only are we only 60% funded, but we pay out about 6% a year. So we need a fair amount of liquidity in addition to downside protection and upside capture.
Trusted Insight: It’s a particularly tough market right now, both on public and private side. You said you are only 60% funded and have to pay out 6%. Is insolvency a concern?
Anne-Marie Fink: No. Unlike many corporate plans, ours is an open plan. Therefore, we are not dealing with a finite liability.
Moreover, the pension reform Rhode Island undertook about four years ago has put us on a sustainable path. We went from an extremely generous defined-benefit program to a hybrid plan that combines a still generous defined-benefit program with a healthy defined-contribution program and a strong employer match. That combination is helpful because it shares some, but not all, of the impact of market moves. Now the impact is split between the employer (a.k.a. taxpayers) and the employee, which makes the plan more sustainable over time.
Because of the way the hybrid plan works, the state’s diligence about paying its ARC (Annual Required Contribution) and the multi-decade amortization of the unfunded liability, the pension system is now on a good path. By 2032, we should be fully funded. Though the current snapshot is challenging, we are on a sustainable path to get the plan to a much better place, due to some hard decisions that were made four years ago. I think we are actually on a very good path at this point.
Trusted Insight: Unlike most other types of institutional investors, pension funds are not tasked with perpetuating the wealth of a small handful of high net worth individuals. Instead you are managing a huge pool of money comprised of average American’s wages, who are more than likely not particularly wealthy. Is that a burden to bear, a righteous cause or just the same as any other large AUM that needs to be deployed strategically?
Anne-Marie Fink: It’s rewarding to know that I can take what I learned at a private bank, which is working for high net worth individuals, and apply those skills to people who are relying on these pension checks to meet daily expenses, and for whom better performance can make a substantial difference in their lives.
Trusted Insight: What is the biggest challenge of pension investing that is unique to pensions?
Anne-Marie Fink: It’s a much more fixed liability than those of other entities. We were talking earlier about high net worth individuals. They can often adjust their spending, and in 2008 a lot of people had the talk to adjust their budgets. Whereas with pensions, it’s a less negotiable liability.
Foundations are another example. They have to spend 5% of their assets a year. If the assets decline 30% because of a global financial crisis, then the foundation’s liability also fell as well. Most won’t cut their spending that much, but they could. In contrast, a pension liability doesn’t go down if there’s fewer assets. That fixed liability is a unique feature of pensions.
As a public pension, our further challenge is the broad number of constituents that we serve. The communication element in what we do is considerably more complex than if it’s an individual family or in an institution there’s typically a board.
Trusted Insight: What’s the #1 rule you’ve learned in your career as an institutional investor?
Anne-Marie Fink: The importance of developing an expertise in a specific area and then building on that expertise over time, really applying yourself to learn the details of something. From there you can go broader.
I started my career as an equity analyst. I was very deep in individual equities and have gone gradually more broad. So I went from individual equities to equity hedge funds to an entire portfolio.
To learn more about the top-tier institutional investors, check out Trusted Insight's list of Top 30 Ivy League Graduate Chief Investment Officers - Part 1.
Ms. Fink was recently named to Trusted Insight’s ranked list of the Top 30 CIOs With Ivy League Education. She graciously spoke with Trusted Insight on Oct. 29. The following interview has been edited and condensced for clarity.
Trusted Insight: You spent more than 15 years at JPMorgan and nearly five of those years focusing on hedge funds. What inspired you to make the switch to the pension industry?
Anne-Marie Fink: It was a combination of the opportunity to look at a broader portfolio and really think about how all the different pieces of the portfolio fit together and not just a few of the asset classes. Plus the opportunity to work on something meaningful that makes a difference in people’s lives.
Trusted Insight: Let’s talk about your education. You have a BA in Humanities from Yale and MBA from Columbia. Of course, the MBA will have played a large part in where you are today, but a Humanities degree is a now-underappreciated area of study. How has your Humanities degree, your time at Yale, informed your decision making process at the pension?
Anne-Marie Fink: It’s been enormously helpful, mostly in the ability to synthesize. The way the humanities degree was organized at Yale, we would study different eras of history, mostly European history, and look at them through different prisms or disciplines -- through history, literature, philosophy and art. It required thinking about the common threads that you find across all of those different disciplines.
That is similar to what you do in investing. You look at what’s happening with rates, in equities, in macroeconomic indicators and try to pull together a cohesive view of the markets and where opportunities lie.
Trusted Insight: What is your investment philosophy, and how has that been informed by your time at Yale?
Anne-Marie Fink: I would go back to what I said earlier about having a very broad view. Particularly at Yale, but even at Columbia, the ability to learn very broadly and think about a variety of disciplines and synthesize things in a pure liberal arts way. So rather than thinking about applied knowledge, just thinking about learning, researching and analyzing in a very broad way has been enormously helpful in being able to assess investments.
Trusted Insight: Tell me about your investment team and how they differ from other pension funds.
Anne-Marie Fink: We are a very lean team internally and then we leverage our consultants as an extension of staff. It works reasonably well because we, as the lean team, can look at investments at a high level, with a big-picture view, and then dive deep as needed or in the places where we want to go more in-depth. At the same time, we have our consultants who tend to be deeper in various areas, and they can bubble opportunities up to us. It gives us a top-down, bottom-up combination that works reasonably well.
Trusted Insight: Tell me about the construction of your portfolio and how it meets your needs in this tough investment climate.
Anne-Marie Fink: We have a particularly difficult investment challenge. Our targeted rate of return is 7.5%. At the same time, the pension fund is only a little bit more than 60% funded. So we need high returns, and we can’t afford to lose any money. Also we have a very lean team, so we are resource- and time-constrained. That is our challenge.
The way we’ve solved that multi-faceted challenge is with a portfolio that is roughly half in equities. This long-only allocation is all passive, mostly with market cap-weighted indexes and and some that are factor weighted. That is a large chunk of the portfolio that we can put to work efficiently, both in terms of fees that we pay and staff time required.
Another quarter or so of our portfolio is in fixed income. 15% of the total portfolio, so most of the fixed income, is in a Barclays Agg-targeted portfolio. There we are really looking for the downside protection. It’s very constrained mandate and really focused on Treasuries and agencies. We have a little bit in TIPS and a little bit in loans. The TIPS give us a little inflation protection, and the loans protect us from rate rises and give some credit exposure.
We’ve tried to be pretty thoughtful and concentrated on the particular positions we are taking with each part of our portfolio. What do I mean by that? Our Barclays Agg is really focused on Treasuries. More core bond funds layer in a lot of credit, and we separate that out. So we have our Barclays Agg, which is very Treasuries oriented, and we have credit through loans and some short-dated high yield, where we minimize the duration out and focus on credit.
The last part of the portfolio is in alternatives. We have about 15% in hedge funds. We specifically look for hedge funds that are not beta oriented. They generate returns more from alpha. Within the hedge fund universe, you have a full spectrum. At one end of the spectrum is the shoot-the-lights out, and we are not doing that. We are sort of at the other end of the spectrum, where we seek regular, steady returns generated through security selection, both long and short.
We have another 7% or so in private equity and our private equity allocation includes basically everything private. We’ve got private equity, private debt and venture in that category. Rounding out the portfolio, we have about 6% in real estate and 2%-to-3% in infrastructure.
Going back to the investment challenge, not only are we only 60% funded, but we pay out about 6% a year. So we need a fair amount of liquidity in addition to downside protection and upside capture.
Trusted Insight: It’s a particularly tough market right now, both on public and private side. You said you are only 60% funded and have to pay out 6%. Is insolvency a concern?
Anne-Marie Fink: No. Unlike many corporate plans, ours is an open plan. Therefore, we are not dealing with a finite liability.
Moreover, the pension reform Rhode Island undertook about four years ago has put us on a sustainable path. We went from an extremely generous defined-benefit program to a hybrid plan that combines a still generous defined-benefit program with a healthy defined-contribution program and a strong employer match. That combination is helpful because it shares some, but not all, of the impact of market moves. Now the impact is split between the employer (a.k.a. taxpayers) and the employee, which makes the plan more sustainable over time.
Because of the way the hybrid plan works, the state’s diligence about paying its ARC (Annual Required Contribution) and the multi-decade amortization of the unfunded liability, the pension system is now on a good path. By 2032, we should be fully funded. Though the current snapshot is challenging, we are on a sustainable path to get the plan to a much better place, due to some hard decisions that were made four years ago. I think we are actually on a very good path at this point.
Trusted Insight: Unlike most other types of institutional investors, pension funds are not tasked with perpetuating the wealth of a small handful of high net worth individuals. Instead you are managing a huge pool of money comprised of average American’s wages, who are more than likely not particularly wealthy. Is that a burden to bear, a righteous cause or just the same as any other large AUM that needs to be deployed strategically?
Anne-Marie Fink: It’s rewarding to know that I can take what I learned at a private bank, which is working for high net worth individuals, and apply those skills to people who are relying on these pension checks to meet daily expenses, and for whom better performance can make a substantial difference in their lives.
Trusted Insight: What is the biggest challenge of pension investing that is unique to pensions?
Anne-Marie Fink: It’s a much more fixed liability than those of other entities. We were talking earlier about high net worth individuals. They can often adjust their spending, and in 2008 a lot of people had the talk to adjust their budgets. Whereas with pensions, it’s a less negotiable liability.
Foundations are another example. They have to spend 5% of their assets a year. If the assets decline 30% because of a global financial crisis, then the foundation’s liability also fell as well. Most won’t cut their spending that much, but they could. In contrast, a pension liability doesn’t go down if there’s fewer assets. That fixed liability is a unique feature of pensions.
As a public pension, our further challenge is the broad number of constituents that we serve. The communication element in what we do is considerably more complex than if it’s an individual family or in an institution there’s typically a board.
Trusted Insight: What’s the #1 rule you’ve learned in your career as an institutional investor?
Anne-Marie Fink: The importance of developing an expertise in a specific area and then building on that expertise over time, really applying yourself to learn the details of something. From there you can go broader.
I started my career as an equity analyst. I was very deep in individual equities and have gone gradually more broad. So I went from individual equities to equity hedge funds to an entire portfolio.
To learn more about the top-tier institutional investors, check out Trusted Insight's list of Top 30 Ivy League Graduate Chief Investment Officers - Part 1.