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Exclusive Q&A With Josh Ross, Illinois TRS' Newest Investment Officer

by trusted insight posted 4years ago 1484 views

Josh Ross is an investment officer at Teachers'​ Retirement System of the State of Illinois (TRS), where he helps manage the $45.7 billion pension fund’s private equity investments. Josh joined TRS in December 2016. Previously, he was vice president with HBE BiorefineryCo and an impact investor at Ulupono Initiative, a family office-backed investment firm in Hawaii. Before that, he was a private equity investor at Liberty Mutual for six years.

In this interview, Ross discusses his new role at Illinois TRS, why he thinks public pension funds are more similar to insurance companies than endowments, and shares his experience working with a Hawaii-based impact investment organization.

Josh graciously spoke with Trusted Insight on December 20, 2016. The following interview has been edited for clarity. Josh has also asked us to state that his comments in this interview are made in a personal capacity and are not endorsed by his current or former employers.

Trusted Insight: How is your new job at Illinois Teachers’ Retirement System?

Joss Ross: It's only been about two weeks, so things are still pretty fresh for me. So far, it has been really great. Both of us are lucky to have found each other. I was searching for a role and looked at a number of different organizations and came across an opening here at TRS, and I happened to know some of the other team members who either were at TRS or had been here. It was an interesting opportunity.

There are three people covering our private equity portfolio. We have some other professionals who cover real estate and hedge fund strategies. Like many pension plans, we also work with a couple of consultants who help us with some of the work that we do.

Trusted Insight: Why did you pick a position at a public pension instead of other types of investment offices?

Josh Ross: I looked at a number of different organizations. I had worked with a corporate investor that covers both balance sheet capital and pension capital. I had also worked for a family office. I saw the importance of gaining additional investor experience and believe that would be helpful for my career.

What's nice about working at TRS in particular is it's a relatively small team, where I felt that I could come on board and really be a part of that team. The investment department at TRS is a bit smaller than some of the other organizations I looked at, where there were maybe 20 or 100 investment professionals in one office. At TRS it’s a small team, but we still have a strong platform in terms of assets under management and the strategies that we pursue.

Trusted Insight: You also had worked at a family office-backed impact investment firm in Hawaii. Can you speak a little to that experience?

Josh Ross: I worked for Ulupono Initiative, which is part of the Omidyar Network, the impact-oriented family office of eBay co-founder Pierre Omidyar. The Omidyar network has different investment strategies, many of which are impact investment strategies focused on improving lives, communities, and the world around them. The organization that I was working with makes private equity and debt investments in companies with a focus on the State of Hawaii. Hawaii is a special place; it deserves stewards whose mission is to help sustain it in the future. Ulupono and other impact investment organizations can help play a role in preparing Hawaii for its future. It was neat to be a part of an organization that pursues that mission.

Trusted Insight: Private equity is your top expertise. Can you tell me about TRS’ allocation in private equity?

Josh Ross: As of September 2016, our allocation to private equity was about 12%, which was a little under our target. My sense is that we tend to be similarly allocated or maybe a little bit more conservatively allocated relative to some other plans. We are thoughtful about the current market environment and we believe that private equity is an important part of our portfolio. I think in the future we see the potential to continue to grow our private equity asset allocation. So far, our board has been very supportive of the asset class.

Our goal is to take a long-term strategic view towards the overall portfolio, including private equity. So to that extent, we make tactical decisions that contemplate the current market environment.

Trusted Insight: How do you go about selecting private equity managers? Are management fees a major concern?

Josh Ross: I think like many LPs, we look for high quality managers who we believe have the potential to perform in the future. The importance of the work that we do on the private equity team is doing our due diligence to try to determine if that manager can perform in the future.

When we evaluate making an investment with a manager, we evaluate them on a number of different criteria. Fees are an important consideration of evaluating investments, but it can't be the only decision maker. We need to look beyond that. We look at the customary things that an LP would consider -- their management team, firm strategy, track record and our expectations of their ability to replicate that performance in the future. Some managers tend to outperform across-market cycles and others perform better in certain market cycles. What we focus on is thinking about the diversity of our portfolio and preparing it to be able to weather through different market environments.

Trusted Insight: What’s your view on applying other institutional investing model -- the endowment model, for example -- to public pension funds?

Josh Ross: My personal opinion is that public pensions are more like insurance companies than traditional endowments. Pensions and insurance companies are subject to regulation and need to follow both legal guidelines and organization-specific guidelines we have as fiduciaries of capital. In contrast, endowments are generally afforded more flexibility, so I think they can generally be more opportunistic. For public pensions, some may have the ability to approach it more as an endowment in situations where there is an appropriate asset liability mix.

Endowments are generally perpetual organizations. Pension plans are, or are not, depending on the structure of that individual plan. In my opinion, there's no blanket answer here. What I would say is that, generally speaking, public pensions are subject to regulations and state specific laws, and then organization specific requirements of their investment policies.

Trusted Insight: In addition to regulations, what similarities and differences do you see between pensions and insurance companies? You have extensive experience in the insurance industry. Are there any transferrable skills?

Josh Ross: I think the biggest overlap between insurance companies and pension plans in general, including public pension plans, is the matching of long-term assets with long-term liabilities. Public pension plans are similar to many insurance companies, especially those that have long-tailed liabilities; like life and workers' compensation insurance companies. The time horizon of those liabilities is similar to public pensions.

For me, as a private equity professional, the day-to-day work at a public pension plan and at an insurance company is quite similar.Although there might be different processes, policy statements, and target allocations; the day-to-day is pretty much the same.

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