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Exclusive Q&A: Bob Jacksha, Chief Investment Officer, New Mexico Educational Retirement Board

by trusted insight posted 2years ago 6267 views
Bob Jacksha is the chief investment officer for New Mexico Educational Retirement Board, a pension fund with $11 billion assets under management. Prior to being appointed as CIO of New Mexico Educational Retirement Board, he was the deputy CIO at the New Mexico State Investment Council. Jacksha received an MBA from the University of St. Thomas and a Bachelor's degree in Business Administration from Bemidji State University.

Jacksha was recently named to Trusted Insight’s ranked list of the Top 30 Pension Chief Investment Officers. He graciously spoke with Trusted Insight on January 29, 2016. The following interview has been edited and condensed for clarity.

Trusted Insight: What makes you lose sleep at night?

Bob Jacksha: What’s going on currently does, because a lot of it's in the emerging markets. We have a strategic overweight within our equity portfolio to emerging markets with the idea that over time that’s where more growth will probably come from. Also, we think it offers better diversification versus the U.S. Obviously that hasn’t been fruitful in the recent past. 

Geopolitics in general: things like ISIS, Russia, Ukraine, North Korea, China and the South China sea. The Chinese economy is part of the EM situation. Those are all issues that we think about a lot.

Trusted Insight: What is the biggest challenge is that you faced right now that’s unique to pension investing?

Bob Jacksha: What’s probably unique to pension investing for public plans is the public nature of it. It’s highly visible. We have legislative control over our budgets, over our ability to hire people. That’s it. It’s the public nature.

Trusted Insight: Within the public pension, you are a part of the government entity which restricts your ability to attract and retain talent in comparison to the private sector. How do you go about attracting and retaining talent?

Bob Jacksha: There's no question that being part of a government entity does handicap you there in terms of salary and other things. We have to go through the state system to hire people, et cetera. We are working on some initiatives to improve that situation. I won’t discuss them in detail, because it’s just internal now, and knowing the government system, I'm not sure if we'll be successful. 

In terms of attracting and retaining people, it is somewhat difficult. Our salary scales are low. They're very low relative to private enterprises, and they're even low relative to other public funds. That’s one of the reasons we’re taking an initiative to try to do something there. 

On the other hand, 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. It is hard to attract people from outside of the state because of the salary structure, however. As I said, it’s tough, but we’re working on improving it, and hopefully we can do that.

Trusted Insight: Tell me about your investment team structure and dynamic as it stands today.

Bob Jacksha: First of all, I don’t know that we differ a lot from other public funds. When you look at public funds, you’ll see diversity among a spectrum of how everybody approaches it, but we’re not very different. 

We manage just over 30% of our assets in-house. Some pension funds will manage none, some will manage almost all of it. We do about 30% in equity index funds and core fixed income. 

I have three direct reports in two offices: one in Santa Fe and one in Albuquerque. One of the reports is the manager of operations and they have three people reporting to them. 

We have two deputy CIOs: one who's in charge of alternatives, private equity, real assets, those sorts of things. He has currently two reports. My third direct report is a deputy in charge of public markets and credit. She's got two people reporting to her that manage the core fixed income. She does our index trading and equities.

We started as a very small team. When I started here in 2007, there were only five people and that included one person at operations. We’re 11 today as we’ve diversified our portfolio. From that history as a small team, there was a lot of collaboration required. We still retain that dynamic today to a good degree.

Trusted Insight: You’ve had a variety of experiences throughout your career. The buy side, the sell side, more recently with New Mexico State Investment Council. How did those experiences shape your approach to running the New Mexico Education Retirement Board?

Bob Jacksha: I've worked in a variety of roles and responsibilities over about a 30-year history in the investments business, which makes me feel really old when I say that. My last position before this was as a deputy CIO with the Investment Council, and then the opportunity to be the CIO came up. I think part of that was because of my broad experience that I was fortunate enough to have in previous positions. I think that the breadth of the experience is helpful in what we do.

Trusted Insight: Describe your investment philosophy to me and how that’s developed over your career.

Bob Jacksha: The biggest thing in my mind is the investment approach really needs to be tailored to the circumstances of the institution you serve. Certainly that was drummed into us on the buy side where suitability is always an issue. It’s something that I've seen more and more over my career. 
 
Being on the institutional side means that you have to follow rules, regulations, legal constraints, policies, that sort of thing. On the other hand, I think you need to have policies and practices that allow you enough flexibility to take advantage of opportunities when they're there and to avoid pitfalls when they become apparent.
                                   
Another thing about investment philosophy, that certainly makes a lot of sense, and is a very simple phrase: you buy what's cheap and you sell what's expensive. Simple in philosophy, but much harder to do and much more complicated when you get to the details. A lot of judgment goes into doing that.

Trusted Insight: How have you structured the portfolio to meet your annual return requirements, but also maintain your long-term perspective amid the current market climate?

Bob Jacksha: As I talked about earlier, what's important is to structure the portfolio for the situation of the institution, and that’s how we've structured it. Our funding levels are below where they should be. We've made some changes in the plan design that over time should get us to where we want to be. We're not like Illinois or Kentucky or some of the real problem cases, but we're below average for public funds. We don’t think we can afford a severe drawdown from having a large concentration in any one asset class, such as public equities. 

When I started here in 2007, we had about 70% of our assets in public equities, mainly in the U.S. From the beginning, the board wanted to diversify that to dampen the volatility of returns. We’ve done that. 

Currently our target for public equity is down to 35%, which is about half of where it was. We added a lot of alternative asset classes, and we now have probably one of the more diverse portfolios you'll see in public pension plans. We found these strategies worked and served us well in the recent volatility. I've seen a little peak at what the December numbers look like for the last year, and we'll probably end up in public funds in the top quartile, which is relatively less volatile than most public funds.
                                   
We realize that we do certainly give up a little bit of upside in the real strong bull markets in U.S. stocks, but being an underfunded pension plan, you just can’t afford a big drawdown. That could be catastrophic, and we've tried to avoid that. Knock on wood--so far so good. We’ve dampened the volatility in the portfolio. Given what's going on currently, we’re not doing much different because strategically we're positioned for that already.

Trusted Insight: When looking to make an investment in the private markets, what primary characteristics are you looking for and how does that differ from your approach to investing in public markets?

Bob Jacksha: Public markets, as far as we’re concerned, are more about beta--broad market beta. In fact, a while ago we examined what we were doing with active managers and moved some of that money into index funds, primarily the S&P 500 index fund. 

In private markets on the other hand, we’re looking more to alpha or exotic beta. It’s hard to define it. Some people argue there isn’t that much alpha, and I go, “That’s fine.” Maybe it’s an exotic beta that differs a lot from what happens in the public market. That’s more what we look at. Both of those are in limited supply.
                                   
We're often looking for managers that can execute niche strategies or buy niche assets that are not broadly owned by our brethren in public pension funds. Part of that flows out of our small size. We try to take advantage of that. We’re more on the smaller size of public funds at about $11 billion. 

Again, we tailor our approach to the situation. As a smaller fund, we can access some managers that are in those niche strategies, that have limited capacity that might be a $250 million fund that some of our large brethren wouldn't even bother with.
                                   
That might offer some additional returns or a better risk-return profile than some of the large buyout funds in private equity versus a smaller strategy. A lot of times in private markets managers, we’re looking for that demonstrated ability to execute in a smaller part of the markets.

Trusted Insight: What trends have you identified that are shaping how pensions are run today.

Bob Jacksha: There's a few trends. Certainly on the investment side, we’ve seen funds moving in the same direction that we have: more diversification, moving more into alternative investments and certainly that trend has been going on for a while. 

We’ve also seen a number of funds do what we’ve done on the plan design side: they've increased contributions or changed the eligibility, made plan design changes to address under-funding issues. 

A third one, that I find rather worrisome, is I see more in the press all the time of what I call pension bashing or pension envy. A lot of noise about public defined benefit plans shouldn’t exist. They should all be DC and those things. I find that a troublesome trend.

Trusted Insight: Pension funds manage the money of average Americans, who are likely not particularly wealthy. Is that a burden to bear or do you approach it as you would any other larger AUM that needs to be deployed strategically?

Bob Jacksha: It certainly is an important responsibility, but I've never looked at that as a burden, more as a privilege. We’re managing money for educators, which is an important role in our society, teaching the next generation. It’s an important role, but it’s not a really highly compensated profession. As you said, most of them are average Americans’ wages or maybe even below average for teachers. If we can contribute to delivering them a secure retirement, that’s a privilege. Yes, it’s a responsibility, but I never see it as a burden.

Trusted Insight: If you could impart the number one lesson that you’ve learned in your career as an institutional investor on the next generation of CIOs, what might that be?

Bob Jacksha: Only one? We have a little joke here. I don’t know if you’ve ever watched NCIS, but if you have, then you know about Gibb’s rules. I have Bob’s rules that we joke about with staff, and I actually have a list of a few of them. One that comes to mind, certainly from the 2008/2009 situation, is if you can, avoid putting yourself in a position where you’re a forced seller of assets. The flip side of that would be when there are forced sellers, look to buy from them. They probably have to sell at any price, and you can probably do very well doing that.

To learn more about the the Top 30 Pension Fund Chief Investment Officers, click here.

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