Elizabeth Burton is the chief investment officer at the Employees’ Retirement System of the State of Hawaii (“HIERS”), a $20 billion pension investment fund. Previously, she was managing director of the quant strategies group at the Maryland State Retirement and Pension System.
In this interview, she emphasized the importance of attracting and retaining investment talent while being on an island; why the plan has adopted a more conservative investment approach; and how they're laser-focused on running an efficient system.
Burton was named to Trusted Insight's 2020 All-Star Chief Investment Officers.
Trusted Insight: Tell us about the Employees’ Retirement System of the State of Hawaii (“HIERS”).
Elizabeth Burton: Hawaii Employees’ Retirement System is a $20 billion defined benefit plan serving retirees of the state here in Hawaii. It's a pretty big local presence. About 1 in 10 Hawaiians are members of our retirement system. Despite our size, it has a lot of influence on the state and a lot of stakeholders involved, we are a small investment team of 8 people.
Trusted Insight: You’ve been there for over 2 years. How will the investment office/efforts continue to evolve under your leadership?
Elizabeth Burton: There was about 7 months between when the last CIO departed and I joined ERS. I have to give credit to the team for not missing a beat. They continued on their plan of allocating to new managers and pushing forward on their asset allocation that they had designed in their last study. There wasn't too much from that standpoint that was really missing. In terms of the team, we've added one person and we're trying to add a couple more. At the margins, I did reorient people into what their interests and strengths were and created some levels of hierarchy at the plan, because most importantly, it's a small plan and we are on an island and talent recruitment is tough, so we need to recruit the best and retain the best. It's not as easy for people to move to an island versus just another state, we have to have greater succession planning. The Board has spent time trying to do compensation studies as well to make sure we are in line with peers. We are still a flat organization, but now we have role development and career progression put in place as well as compensation for professional studies and education.
In terms of the portfolio, when I first got here, I was interested in what the plan was for the credit side of the portfolio, also in alternative investments. Lately, I have been focused on the diversifying strategies bucket. In 2019 the Board approved a new asset allocation plan and moved a little bit away from just having risk mitigation strategies to including additional diversifiers--investments that have positive expected carry in normal markets, not just the potential convexity.
Trusted Insight: How does your investment office view the opportunities in allocating to private equity, and specifically venture capital?
Elizabeth Burton: We're a small team and we only have one full-time person on our private equity portfolio. We outsource some to our consultant Hamilton Lane on a discretionary basis. If something doesn't fit Hamilton Lane's plan and we think it fits in our portfolio--or could perhaps be in the diversifying bucket or something like that, then we could undertake the underwriting on our own. That's really the exception. We do have a pretty mature private equity portfolio and it's performed really well for us, under Hamilton Lane and the leadership of Aaron Au, who runs our private equity portfolio. He has over 25 years experience in the business and he's really talented.
We have been altering the portfolio slightly. A couple of years ago, we were a little bit over-allocated to venture (within the private equity portfolio, not at the total plan level). We've been trying to diversify that exposure lately. In general, we're pretty pleased with how that portfolio is shaped out. It's been a return driver for us and pretty well thought out. We've looked at adding a couple of things over the last year. We've added some secondary exposure and general partnership stakes to round out the portfolio.
Trusted Insight: In another interview, you mentioned having a conservative investment approach. Do you think there also times to play offensively when investment opportunities present themselves?
Elizabeth Burton: The Board of Trustees has adopted a conservative investment approach. The assets of the Plan belong to the beneficiaries of Hawaii ERS and the Board sets its risk return objectives and asset allocation based on prudent investing principles. When I was at Maryland, they had a different asset allocation because they have a different plan (funding, size, etcetera). Hawaii ERS is very different from other plans, not only because we are 55% funded so we do have to be very cautious about our approach, liquidity, and market position.
I think that's only more important during COVID, when a lot of states, particularly those with ties to tourism, have probably seen significant impacts in their budgets. We do have to pay attention to that since employer contributions make up part of our Funding. However, I would say it is hard to make money without taking at least some calculated risks. There's no free lunch. We're not completely risk averse, but I would say we're very methodical and measured. The one thing that's a little bit different from some of our peers is they can go into maybe lower volatility or lower returning strategies due to their higher funding level. We're in a position where not only do we want to protect, but we have to earn incrementally over our target in order to keep or improve our funding ratio. We do target, in certain parts of our book, different volatilities than peers to try to get the most efficiency out of our capital.
If you had to distill Hawaii ERS’ investment philosophy down into maybe one word, it would be efficient. We're really focused on how efficient our portfolio is. That means we try very hard not to take duplicating bets in the book, which may be easier for us than for some other plans because we don't have traditional asset class silos. You don't see a traditional equity book, nor a traditional fixed income book. We group things by their risk drivers. We make sure that there's no cash drag on the portfolio.
Trusted Insight: What are some of the lessons learned at Maryland? How would you summarize the transition to your current role?
Elizabeth Burton: Some of the best things I learned from Maryland was how to get internal buy-in and stakeholder buy-in, and how to trust and delegate to your people. One of the reasons I was really happy at Maryland was that their CIO Andy Palmer really believes in his staff and you can earn your way to being pretty independent. At the same time, you have a lot of faith from Andy as long as you've proven yourself. That was a good lesson for me. If you empower people and aren't micromanaging them, you can really get the most out of them and they're happier. That creates a more enjoyable work environment, and that's something that I learned at Maryland. I really feel like empowering staff is very important, and that's something that I try very hard to do here as well.
I’m lucky for the team that I inherited, because they're all really experienced and smart. Several of them have actually been CIOs before. They're a quite talented, really strong team. One of the worst things I could have done was coming here and say, "You're all wrong. Here is my opinion. Take it or leave it." Instead, I run a pretty flat organization and I try to get buy-in from absolutely everybody. Not only because I enjoy that, but also because in a lot of cases, they have more experience. They're experts in their field. My job isn't to be an expert in every single field. My job is to support them and then get out of their way. Check their processes and make sure everything's on the up and up and question some assumptions. At the same time, I give them the tools and flexibility to do what they're best at.
Trusted Insight: Is emphasizing the importance of diversity a mission for the Hawaii Employees Retirement System both at the organization and investment level?
Elizabeth Burton: I would say Hawaii ERS is one of the most diverse I've ever worked at. I'm used to being one of the only females in the room, but here we've got diversity of gender, ethnicity, education, background, and culture. It's really across the whole organization, not just investments. If you looked at our branch chiefs, our executive staff, and at every level of the organization you'd see that we're really quite diverse. I feel like at the team level that has actually come about somewhat organically. We are just looking for the best talent no matter where they're coming from and it has worked out that way. I also think in a lot of respects Hawaii can attract people from all over the world. We’re lucky for that as well.
In terms of our relationships with our managers, we do strive for diversity there as well. We don't have a mandate for it, but we're looking for the best talent no matter where they come from. We do scour the earth as best as possible to try to find those. I agree that it does start from the top, although I think that everybody has some obligation there.
Something that I've been trying to communicate is that finance is a really diverse field. There's not just one job. When people think about finance, they think about trading or something like that, and that's just simply not the case. There's financial writing, operations, financial marketing, investor relations, project management, manager research, consulting, etc. There are so many different ways that you can get into finance. It's not always necessarily helpful to say, "You should go into finance." I think it's more helpful to say, "Okay, our organization really needs a good investment writer. Where are good writers?" Are there any local writing clubs? Which is just an example and writing's kind of niche, but I'm just saying there's a better way to go about it. I think the industry needs to communicate that there's so many paths to success and to great careers in this industry that don't mean you have to follow the stock market every day, because that's not interesting to everybody.
Trusted Insight: Is there anything you’d like to add to our discussion?
Elizabeth Burton: In terms of what we're focused on here it’s efficiency. We're also very concerned about surprise inflation in 2021. That's a lot of the things we're working on. I think most public institutions have public market benchmarks that potentially, because of the rise in tech this year or exclusions from the index of certain countries, they may be over or underweight the sectors unintentionally. That's a big concern for us. I would say in a year like this, investing in your people is probably the best return on investment you can make. If you believe that they're good stock pickers, manager pickers, asset allocators, the marginal cost of investing in your people is very low to the potential outcome that you could reap going forward.
I know that people might be considering cutting costs or getting lean and this isn't speaking to why, I think now is the time to believe and trust in your talent. It’s the time to invest in and develop them, especially now that it's so much easier to gain access to information and education than it might've been before. That's the one thing that is really important to me and that needs to be true in this industry.
View our full catalog of interviews here.
The full list of 2020's All-Star Chief Investment Officers can be found here.
In this interview, she emphasized the importance of attracting and retaining investment talent while being on an island; why the plan has adopted a more conservative investment approach; and how they're laser-focused on running an efficient system.
Burton was named to Trusted Insight's 2020 All-Star Chief Investment Officers.
Trusted Insight: Tell us about the Employees’ Retirement System of the State of Hawaii (“HIERS”).
Elizabeth Burton: Hawaii Employees’ Retirement System is a $20 billion defined benefit plan serving retirees of the state here in Hawaii. It's a pretty big local presence. About 1 in 10 Hawaiians are members of our retirement system. Despite our size, it has a lot of influence on the state and a lot of stakeholders involved, we are a small investment team of 8 people.
"It's a small plan and we are on an island and talent recruitment is tough, so we need to recruit the best and retain the best."
Trusted Insight: You’ve been there for over 2 years. How will the investment office/efforts continue to evolve under your leadership?
Elizabeth Burton: There was about 7 months between when the last CIO departed and I joined ERS. I have to give credit to the team for not missing a beat. They continued on their plan of allocating to new managers and pushing forward on their asset allocation that they had designed in their last study. There wasn't too much from that standpoint that was really missing. In terms of the team, we've added one person and we're trying to add a couple more. At the margins, I did reorient people into what their interests and strengths were and created some levels of hierarchy at the plan, because most importantly, it's a small plan and we are on an island and talent recruitment is tough, so we need to recruit the best and retain the best. It's not as easy for people to move to an island versus just another state, we have to have greater succession planning. The Board has spent time trying to do compensation studies as well to make sure we are in line with peers. We are still a flat organization, but now we have role development and career progression put in place as well as compensation for professional studies and education.
In terms of the portfolio, when I first got here, I was interested in what the plan was for the credit side of the portfolio, also in alternative investments. Lately, I have been focused on the diversifying strategies bucket. In 2019 the Board approved a new asset allocation plan and moved a little bit away from just having risk mitigation strategies to including additional diversifiers--investments that have positive expected carry in normal markets, not just the potential convexity.
"Hawaii ERS is very different from other plans, not only because we are 55% funded so we do have to be very cautious about our approach, liquidity, and market position."
Trusted Insight: How does your investment office view the opportunities in allocating to private equity, and specifically venture capital?
Elizabeth Burton: We're a small team and we only have one full-time person on our private equity portfolio. We outsource some to our consultant Hamilton Lane on a discretionary basis. If something doesn't fit Hamilton Lane's plan and we think it fits in our portfolio--or could perhaps be in the diversifying bucket or something like that, then we could undertake the underwriting on our own. That's really the exception. We do have a pretty mature private equity portfolio and it's performed really well for us, under Hamilton Lane and the leadership of Aaron Au, who runs our private equity portfolio. He has over 25 years experience in the business and he's really talented.
We have been altering the portfolio slightly. A couple of years ago, we were a little bit over-allocated to venture (within the private equity portfolio, not at the total plan level). We've been trying to diversify that exposure lately. In general, we're pretty pleased with how that portfolio is shaped out. It's been a return driver for us and pretty well thought out. We've looked at adding a couple of things over the last year. We've added some secondary exposure and general partnership stakes to round out the portfolio.
Trusted Insight: In another interview, you mentioned having a conservative investment approach. Do you think there also times to play offensively when investment opportunities present themselves?
Elizabeth Burton: The Board of Trustees has adopted a conservative investment approach. The assets of the Plan belong to the beneficiaries of Hawaii ERS and the Board sets its risk return objectives and asset allocation based on prudent investing principles. When I was at Maryland, they had a different asset allocation because they have a different plan (funding, size, etcetera). Hawaii ERS is very different from other plans, not only because we are 55% funded so we do have to be very cautious about our approach, liquidity, and market position.
"If you had to distill Hawaii ERS’ investment philosophy down into maybe one word, it would be efficient. We're really focused on how efficient our portfolio is."
I think that's only more important during COVID, when a lot of states, particularly those with ties to tourism, have probably seen significant impacts in their budgets. We do have to pay attention to that since employer contributions make up part of our Funding. However, I would say it is hard to make money without taking at least some calculated risks. There's no free lunch. We're not completely risk averse, but I would say we're very methodical and measured. The one thing that's a little bit different from some of our peers is they can go into maybe lower volatility or lower returning strategies due to their higher funding level. We're in a position where not only do we want to protect, but we have to earn incrementally over our target in order to keep or improve our funding ratio. We do target, in certain parts of our book, different volatilities than peers to try to get the most efficiency out of our capital.
If you had to distill Hawaii ERS’ investment philosophy down into maybe one word, it would be efficient. We're really focused on how efficient our portfolio is. That means we try very hard not to take duplicating bets in the book, which may be easier for us than for some other plans because we don't have traditional asset class silos. You don't see a traditional equity book, nor a traditional fixed income book. We group things by their risk drivers. We make sure that there's no cash drag on the portfolio.
"I’m lucky for the team that I inherited because they're all really experienced and smart. Several of them have actually been CIOs before."
Trusted Insight: What are some of the lessons learned at Maryland? How would you summarize the transition to your current role?
Elizabeth Burton: Some of the best things I learned from Maryland was how to get internal buy-in and stakeholder buy-in, and how to trust and delegate to your people. One of the reasons I was really happy at Maryland was that their CIO Andy Palmer really believes in his staff and you can earn your way to being pretty independent. At the same time, you have a lot of faith from Andy as long as you've proven yourself. That was a good lesson for me. If you empower people and aren't micromanaging them, you can really get the most out of them and they're happier. That creates a more enjoyable work environment, and that's something that I learned at Maryland. I really feel like empowering staff is very important, and that's something that I try very hard to do here as well.
I’m lucky for the team that I inherited, because they're all really experienced and smart. Several of them have actually been CIOs before. They're a quite talented, really strong team. One of the worst things I could have done was coming here and say, "You're all wrong. Here is my opinion. Take it or leave it." Instead, I run a pretty flat organization and I try to get buy-in from absolutely everybody. Not only because I enjoy that, but also because in a lot of cases, they have more experience. They're experts in their field. My job isn't to be an expert in every single field. My job is to support them and then get out of their way. Check their processes and make sure everything's on the up and up and question some assumptions. At the same time, I give them the tools and flexibility to do what they're best at.
Trusted Insight: Is emphasizing the importance of diversity a mission for the Hawaii Employees Retirement System both at the organization and investment level?
Elizabeth Burton: I would say Hawaii ERS is one of the most diverse I've ever worked at. I'm used to being one of the only females in the room, but here we've got diversity of gender, ethnicity, education, background, and culture. It's really across the whole organization, not just investments. If you looked at our branch chiefs, our executive staff, and at every level of the organization you'd see that we're really quite diverse. I feel like at the team level that has actually come about somewhat organically. We are just looking for the best talent no matter where they're coming from and it has worked out that way. I also think in a lot of respects Hawaii can attract people from all over the world. We’re lucky for that as well.
In terms of our relationships with our managers, we do strive for diversity there as well. We don't have a mandate for it, but we're looking for the best talent no matter where they come from. We do scour the earth as best as possible to try to find those. I agree that it does start from the top, although I think that everybody has some obligation there.
Something that I've been trying to communicate is that finance is a really diverse field. There's not just one job. When people think about finance, they think about trading or something like that, and that's just simply not the case. There's financial writing, operations, financial marketing, investor relations, project management, manager research, consulting, etc. There are so many different ways that you can get into finance. It's not always necessarily helpful to say, "You should go into finance." I think it's more helpful to say, "Okay, our organization really needs a good investment writer. Where are good writers?" Are there any local writing clubs? Which is just an example and writing's kind of niche, but I'm just saying there's a better way to go about it. I think the industry needs to communicate that there's so many paths to success and to great careers in this industry that don't mean you have to follow the stock market every day, because that's not interesting to everybody.
Trusted Insight: Is there anything you’d like to add to our discussion?
Elizabeth Burton: In terms of what we're focused on here it’s efficiency. We're also very concerned about surprise inflation in 2021. That's a lot of the things we're working on. I think most public institutions have public market benchmarks that potentially, because of the rise in tech this year or exclusions from the index of certain countries, they may be over or underweight the sectors unintentionally. That's a big concern for us. I would say in a year like this, investing in your people is probably the best return on investment you can make. If you believe that they're good stock pickers, manager pickers, asset allocators, the marginal cost of investing in your people is very low to the potential outcome that you could reap going forward.
I know that people might be considering cutting costs or getting lean and this isn't speaking to why, I think now is the time to believe and trust in your talent. It’s the time to invest in and develop them, especially now that it's so much easier to gain access to information and education than it might've been before. That's the one thing that is really important to me and that needs to be true in this industry.
View our full catalog of interviews here.
The full list of 2020's All-Star Chief Investment Officers can be found here.
