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Exclusive Q&A: Bartley Parker, Managing Director, Real Estate, MainePERS

by trusted insight posted 2years ago 8396 views

Bartley Parker is a managing director of real estate investments at Maine Public Employees Retirement System (MainePERS). Prior to joining MainePERS in 2008, he spent a total of 11 years working in investment research and investor relations and capital markets strategy. He is a CAIA and a CFA charterholder, and possesses an MBA from the Questrom School of Business and a Bachelors in Economics from Westfield State University.

Bartley Parker was named on Trusted Insight’s list of Top 30 Future CIOs at Pension Funds. He kindly agreed to speak with Trusted Insight on May 5th 2016. The following interview has been edited.

Trusted Insight: What particularly attracted you to working for MainePERS, compared to other pension funds?

Bartley Parker: At the time that I started, we had a very unique situation here at MainePERS. The Fund was really just starting to build its alternative investment program and so we had almost a blank slate. A lot of people told me how lucky I was to be able to start a new program and help shape it for the future. Additionally, our chief investment officer, Andrew Sawyer, is a great person to work for. He has an excellent vision for the System’s investment portfolio.

Trusted Insight: How did you approach shaping the alternatives portfolio?

Bartley Parker: My primary responsibility is overseeing our real estate investments. I took a step back and asked, "What is it that we want real estate to do for our portfolio?" The answer to that question is that our 10% real estate allocation should help diversify the other 90% of the portfolio. While we want real estate to provide a good return, we want the return to be as uncorrelated as possible to the rest of our portfolio. I researched various strategies and found that investments with a large proportion of durable income as a percentage of the total return do the best job of that, as the income helps to dampen the natural volatility of the changes in the valuation of the underlying real estate. I also found that the strategies that are more back-end loaded can end up being a form of equity exposure that costs more and doesn’t provide any diversification benefit, so I have trodden carefully around those.

Trusted Insight: You mentioned that you've got about 10% in your real estate allocation at the moment. How are you looking to develop your position going forwards?

Bartley Parker: On an invested basis, we are slightly over 10% at this time. We've got a good portfolio of investments, and we're really just looking at special circumstances where we think that there is a truly unique opportunity. That could either be a unique property type that we might want to overweight, or a unique geography that we think is underrepresented in the portfolio that will provide good diversification. Going forward, it's really a lot of monitoring and maintaining the long-term investment partnerships that we have. However, we have nine open-ended funds, which gives us some flexibility to make some changes.

Trusted Insight: In terms of those unique investments, is there anything that you're particularly looking for right now within real estate?

We like need-based senior housing, which we think has very strong demographics over the long-term.

Bartley Parker: I would like to increase our weight in properties that produce a durable income. Residential real estate is an example of this; well-occupied multi-unit properties typically produce strong net cash flow. We like need-based senior housing, which we think has very strong demographics over the long-term. We're also looking at certain parts of retail, for example, grocery-anchored shopping centers or super-regional malls, that provide a very strong, consistent income stream.

Trusted Insight: The U.S. real estate market appears to be fairly stable right now, but there is some volatility within China, the UK, and Australia. Are you trying to mitigate against the risk of those real estate markets?

Bartley Parker: Non-U.S. investments do provide some diversification and there are pan-European and pan-Asia opportunities, but I have had a home country bias since I joined in 2008 due to the better relative pricing when you layer into the underwriting process the extra risks associated with non-U.S. investing. I think it’s much easier, and more sensible, for us to try to mitigate those risks by hiring the manager with the best skillset for that type of mandate rather than us trying to do it ourselves in locations where I have no real informational advantage. We have hired several globally-focused managers with such skills and tried not to place a bunch of constraints on them, so that they can use those skills in the service of finding the best risk-adjusted opportunities.

Trusted Insight: Are you seeing any particular trends within the development of how pensions are investing?

We've used more private market investments where we feel like we can get better risk-adjusted returns and have lowered our percentage of public investments.

Bartley Parker: In real estate, I’ve seen large plans take advantage of their large teams by increasingly emphasizing direct deals, and small plans go the opposite direction and sell individual properties in favor of going into funds. I think the use of alternative investments by pensions, meaning private investments, is a trend that was underway before 2008, but has continued. From our standpoint, we’ve tried to pay closer attention to risk management and reducing volatility, which was part of the reasoning behind MainePERS’ development of its alternative asset allocation. We've used more private market investments where we feel like we can get better risk-adjusted returns and have lowered our percentage of public investments.

A related trend is making alternative and private investments more cost-effective. I’ve sought to lower our fees for certain strategies such as core real estate, where reduced fees make a difference in a mid-single digit return profile. Another way the cost-effectiveness trend has played out is the increased emphasis on co-investment where there is sometimes no associated fee and high profit sharing for the capital providers, such as ourselves.

Trusted Insight: How is the team at MainePERS structured and what is the culture like?

Bartley Parker: We have people that are responsible for our larger asset classes and some that are more generalists. For example, I'm responsible for our real estate allocation, and there are others on the team who have responsibility for private equity, infrastructure and natural resources. We all have some responsibilities within other types of funds, for instance, I have a small bit of responsibility for some of our private equity funds. We've set it up in a way where we have some redundancy with some of our funds, our investments and our managers, so that everybody knows what's going on in other parts of the portfolio. It’s a great structure, because oftentimes there are things that are going on with a particular manager I might be following that one of my other colleagues might be interested in knowing. We try to work collaboratively as much as the work allows us to.

Trusted Insight: You spoke about collaborating within the team. How do you go about making investment decisions within the team, and what role does your governance committee play?

Bartley Parker: Our board provides a final decision on each new investment. Before we get to that point, we follow a formalized process which typically includes an investment team member taking the lead on a new investment, manager interviews, completing a rather lengthy due diligence questionnaire, legal analysis, and an internal peer review. At the time of the trustee vote, we've nailed down about 85% of the work on an investment and the other 15% is just final due diligence items and final legal negotiations. Each approval from the trustees is always subject to us getting through those final items.

Trusted Insight: You mentioned hiring managers with the best skillset for certain types of mandates. What do you look for when you're selecting a manager?

Bartley Parker: We have a comprehensive process that we go through. In short, our checklist seeks to understand the general partner, its team, how the team operates – references are very important to us. We review the manager’s strategy relative to our needs. In real estate, for example, a manager may have a perfectly good strategy that could work for someone else who is just looking for the highest return possible, but that's not necessarily what we're looking for. We perform sensitivity analysis on a manager’s track-record, review fund terms and how these are presented in the associated legal documents.

Trusted Insight: What first attracted you to working within institutional investing?

Bartley Parker: I've had a varied career path, but I’ve been involved in the investment industry since I finished graduate school in 1997. I was attracted to the nature of the work and the people I knew working in the industry. I straddle the line between introvert and extrovert, which is good because investment management requires you to work both individually and as part of a team. I think successful people in this business seek to find out why something is, not just what it is, and I’ve always enjoyed asking the question “why?”.

I worked on behalf of a couple of pension fund groups early on after leaving business school. I liked the pension plan model, in terms of being able to invest money for sort of a higher purpose. Working with a single client as opposed to multiple clients is also very appealing. I think the institutional business is very attractive from that standpoint.

Trusted Insight: What career advice would you give to someone who is looking to get into institutional investing?

I think participating in the CFA or CAIA programs is a great place to start. These are almost union-cards, if you will, at many institutional investment firms.

Bartley Parker: I have found that there’s no natural point of entry out of college like there is for say, a doctor, lawyer, or an accountant. The firms that I have worked for or dealt with have looked for people that can think critically, self-manage, and be part of a team. I think participating in the CFA or CAIA programs is a great place to start. These are almost union-cards, if you will, at many institutional investment firms. I found the CAIA program to be particularly useful in my job, because of our increasing use of alternative investments. If someone was looking to crack into the analyst pool at say, Fidelity or Wellington, then I think the CFA program might be more applicable. Yes, the CFA program will provide some background on alternative investments, but the CAIA program has a deeper focus, so in deciding which program to do, think first about where you want to end up professionally. You can always do both too, as I did. Finally, at a base level, institutional investors are trying to understand what is going on in a given industry, so having some specific industry expertise that you can bring to the firm is extremely helpful.

Find out more about the Top 30 Future CIOs at Pension Funds here.