Betty Tse is the chief investment officer at Alameda County Employees Retirement Association (ACERA) in California, overseeing the investment activities of the pension system’s $6.7 billion of assets under management.
Tse was originally from Macau. Her family moved to Hong Kong when she was young. She then moved to America in the 1980s to pursue an advanced education. She graduated from Golden Gate University in San Francisco with a bachelor’s degree (on full scholarship) in Accounting and then earned an MBA from the California State University, East Bay. Before joining ACERA in 1999, Tse had worked as an investment analyst in the U.S. and in Asia, including Taiwan and Hong Kong.
Tse first joined ACERA as an investment analyst. The ACERA investment department at the time had no other staff and a conservative portfolio structure, with investments in only three traditional assets classes. In 2002, Tse became the organization’s first chief investment officer. Prior to her, the investment department was managed by the CEO. In the many years that followed, she was the only woman CIO in California’s pension funds system (governed by the County Employees Retirement Law of 1937). Over the period of 14 years, she helped grew the investment department from a one-person team to a staff of 10 and expanded the ACERA Fund from about $2.8 billion to $6.7 billion after paying benefits and administrative expenses.
Ms.Tse was recently named on Trusted Insight’s ranked list of Top 30 Women Chief Investment Officers. She graciously spoke with us on April 11, 2016. The following interview has been condensed and edited for clarity.
Trusted Insight: Finance is traditionally a male-dominated industry. Many people assume that a woman is bound to face more difficulties than men on this career path. What are your thoughts on this?
Betty Tse: I have been in the public fund business in America for 17 years. I would say that I am glad to see the gradual changes in terms of introducing or embracing more women in the investment side of the business. Gender balance is a big topic in the business, particularly where I am, for many reasons that we all have come to know and support.
Raising a family while successfully managing an institutional pension fund is one of the top difficulties facing women in the business. Many very capable women have chosen to delay pursuing a professional career in investment because of it. It’s still a big obstacle for us in terms of achieving gender balance. Family formation matters to individuals significantly. Many women decide to make the personal choice of staying at home. As a result, the talent pool would not be as big as that for the male counterpart.
The other reason is that many school-aged girls might have had the upbringing of, “Oh, it’s investment, it’s finance, numbers and math. It’s not something that you would be good at. You might be better at arts or language.” I’m also glad to see that kind of thinking is slowly breaking down, meaning that many girls, very early on, go to STEM and leadership programs and are encouraged to study math and science and to lead nowadays. That cultural thinking or shift is taking place. However, perhaps we’re not going to see the result of that shift until the next five to 10 years.
Trusted Insight: How big is the change in today’s investment circle versus 17 years ago when you first started?
Betty Tse: 17 years ago, when I was the investment officer, I was the only woman in all investment officers’ group meetings in the 37 Act counties of California. When I also represented ACERA as an investment officer, and a couple of years later as CIO, participating in outside conferences and meetings, I would be the only woman CIO everywhere. In early 2000s, when I attended SACRS (State Association of County Retirement Systems – a group of 20 counties in California that followed the 1937 ACT legislation, including LA County) conference, I would be the only woman. Today, of the 20 CIOs in SACRS, I’m one of three women.
That cultural thinking or shift is taking place. However, perhaps we are not going to see the result of that shift until the next five to 10 years.
I’m a little surprised by the pace of the progress. 17 years later, only two more women. And, the third one just started a couple of years ago, even in public pension funds, where we have all the support of the counties. In the hiring system, we’re not supposed to pay attention to gender. We cannot ask personal questions in our recruitment process, typically in a governmental setting like a county position recruitment. We encourage and embrace all applicants who meet the job requirements, but in the end, I guess I am surprised by the slow pace of progress.
Trusted Insight: On an individual level, besides the conflict between professional and personal life, what other challenges do women face while pursuing an executive position in investment?
Betty Tse: I would say again the biggest one is the balance between your personal life and your professional life. I’m lucky. I have a very, very supportive family. It does require a lot of time, sometimes a lot of traveling to excel in what I do. The balance between those two aspects of your life is important. In my case, my family and the community that I serve are very supportive of me. The Retirement Board, staff and managers at ACERA are also very supportive of me. I’ve been very, very lucky in that sense. With that kind of support, I am able to focus and do my best and commit to my job.
Another challenge is committing to what you do and what you like to do. It’s not easy because in the public setting, there could be a lot of political pressure. That could be very discouraging and distracting to a lot of people.
When you have the support that you need, you can focus and do the best you can. Supporters, be it your board or your staff, can help you to move forward to manage those potential political distractions. The three qualities that would help to navigate through challenges include balance, focus and commitment.
I am very proud that the ACERA Investment Department has been able to consistently deliver strong returns and to meet the Policy requirement of upper quartile performance in the defined benefit universe that we occupy. Our strong investment returns help to reduce the unnecessary distraction that some of my peers have to manage.
Trusted Insight: Since there aren’t that many women in the investment world, do you think gender can sometimes come in as an advantage? For example, in a negotiation situation.
Betty Tse: Yes, if you’re the only woman in the room, and you have something to say and you raise your hand, you tend to get the speaker’s attention and say, “What is your question?” - because you look different from the rest of the room. Other than that, (being a woman) does not really come with any true advantages. It’s the same for men and women. I view myself as one of the members in the room whatever negotiation I’m in.
I would say that other than the superficial -- I use the word sincerely, not in a negative way -- advantage of getting someone to say, “You ask your questions first. Ladies first,” there are not many impactful advantages.
Trusted Insight: Let’s talk a little about your investment portfolio. You’ve been CIO for about 14 years. How has the investment portfolio changed over this long period of time?
Betty Tse: When I first started, the investment portfolio had less than $3 billion, all in very traditional asset classes -- domestic equities, one international equity account, domestic fixed income and real estate. Now, after paying benefits and paying all the administrative expenses, our portfolio manages about $6.7 billion. We’re very proud of that result. We have asset classes that encompass additional investments in private equity, alternative investments, real estate assets and global fixed income. We have about seven categories of investments. As time has progressed, we have built more diversifications into the portfolio. We’re relying less and less on the traditional investment vehicles. We have never had any liquidity issues.
We have also built up the investment team over time -- from a one-person team of just myself to a 10-member team today. I’m grateful for my team’s support. In terms of investment policy, when I first came to ACERA, the CEO was also the CIO. He gave me one policy and said, “This is all we got and I’m not an investment person. The rest is up to you.” Now we have about nine policies, ranging from general investment policies to a policy covering emerging manager programs. We have built the infrastructure of the portfolio, with the support from the board and my team to manage the portfolio. Our annualized return since inception is 9.6%, after paying benefits and paying all administrative expenses.
I’m using that number as a mid-point because since inception I think the number is actually higher, but of course we had the financial crisis that was really disruptive to our return pattern.
Trusted Insight: In terms of investment strategies, what distinguishes ACERA from peer institutions?
Betty Tse: Our risk management process is really well thought-out and well implemented. I consider all of our investment staff not just investment professionals aiming for returns. We’re very good risk managers. This philosophy is also well supported by our trustees. And equally important is our continuous diversification of the portfolio. That helps us to balance the risk posture of the portfolio while maintaining the return pattern. I would say that could be challenging to some of my peers because many people seem to focus solely on returns.
Regarding risk and as of 12/31/2015, our five-year annualized risk was 9.2%, continuing a declining trend. At the same time and as of 12/31/2015, our portfolio’s five-year annualized return was 7.7%, exhibiting an upward trend.
Our risk trend is going down very gradually, without a lot of ups and downs. If you ask, “How do you manage your portfolio risk in such a fashion?” One thing I can think of is consistency in portfolio management. I have been overseeing this fund for well over a decade. I know the portfolio like the back of my hand. When many people may be very excited about a new investment product, e.g. hedge fund, and want to quickly utilize it, we feel comfortable in being patient to educate all the stakeholders and to conduct our due diligence thoroughly before taking any actions. We take our fiduciary responsibilities very seriously.
I consider all of our investment staff not just investment professionals aiming for returns. We’re very good risk managers.
Trusted Insight: You mentioned a lot about your staff. Tell me about their functions. Why are they so concentrated on risk management?
Betty Tse: Risk management is a philosophy and a culture, under the directives of the Board. Successful risk management helps to protect the ACERA Fund from the downside. I have three investment officers. One of them is a senior investment officer who oversees operations. The other two are investment officers. Together with four investment analysts and two administrative support personnel, they help me manage the risks of the portfolio. Technically, we are all generalists. We’re not specialists in any asset class.
Trusted Insight: Like other pension funds, you hire outside managers often. What do you think makes a good investment manager?
Betty Tse: I would say someone who has a good read on the capital market and someone who is also very well connected to his/her discipline of investment strategy. For example, if a manager has the pulse of the quality small-cap companies that he covers, on his/her finger tips, they will be able to capture the heartbeat of these companies. These investment managers usually are in the trenches, with their feet on the ground. They know where to find the yet-to-be discovered small-cap companies.
A good manager also knows how to make decisive and sound judgments based on strong fundamentals. They’re not just out there to collect assets.
Trusted Insight: Where do you see the most appealing opportunities in today’s market for pension funds?
Betty Tse: Everyone is different. For us, private equities, alternative and real assets as well as real estate. Some people group them together. We group them separately. Those four and sub-asset classes are where we see more activity. We’re spending more energy and resources in those areas.
Trusted Insight: What career advice would you give to those who aspire to be the future CIOs, especially women?
Betty Tse: I would say be open minded, embrace opportunity as an individual, unafraid of committing to working hard, learning and excelling in whatever she aims to achieve.