Megan Loehner is the director of investments for the Missouri Local Government Employees Retirement System (MOLAGERS) focusing on all aspects of portfolio management. Prior to joining MOLAGERS in March 2010, she was an investment officer for the Public School and Education Employee Retirement Systems of Missouri (Teacher’s Retirement System) where she spent three years focusing on private equity. Loehner is a graduate of University of Missouri, where she received a B.S. and a master’s degree in accounting. Loehner is a Certified Public Accountant, a Chartered Alternative Investment Analyst and holds the Chartered Financial Analyst designation.
Ms. Loehner was recently named to Trusted Insight’s Top 30 Women Rising Stars in Institutional Investing. She graciously spoke to Trusted Insight on August 16.
In this interview Loehner discusses how an investment team of two vets private market assets, the challenges of working within the often misunderstood pension fund industry and MOLAGERS strategy for recruiting talent.
The following interview has been edited and condensed for clarity.
Trusted Insight: You are on an investment team of two. What's the team dynamic? How's the work divided?
Megan Loehner: There is no division, there are no silos. We work as one team. We actually have a group of four, two focused on investments and two focused on the operational aspects of the investments. We brought on the operations team about five years ago. The dynamics of our team are very intertwined as we all work together on every deal. It helps to put the mosaic together. There is very little separation of duties between Brian and me. We both work on everything, from long-term capital market assumptions to manager selection. It just depends on who has the time to actually lead the process versus just being there for support.
None of us are perfect, so we try to hire others who complement us. In areas I feel I am weak, Brian is strong and vice versa. We continued to do this as we brought on the operations team and as we look to hire in the future. This isn’t just to complement our skill set, it’s personality as well. Because this industry is very demanding and because we have a small team, we don’t have time to deal with personalities that don’t fit well. We are a very transparent group, and that requires a lot of trust. Voicing opinions is a requirement in our team so we must trust that we can be honest with each other and not feel punished for voicing our views.
Trusted Insight: What areas of the market are you optimistic about, and conversely what are you pessimistic about?
Megan Loehner: That's a hard one. This is just my general take, but I like private markets. They tend to be a little bit more profitable, interesting and hands-on in terms of working with those investments and helping to diversify the portfolio away from the public market. Private equity, private real estate and our other private managers have done well for our portfolio. I believe this area will continue to help the return profile of our overall portfolio.
As for pessimistic, creating alpha in the public markets has been hard to do especially in large-cap equity, and we are trying to work through this now. We're starting to move away from the traditional long-only managers and starting to do more portable alpha mandates.
Trusted Insight: You've been following private equity for nearly a decade. What trends have you identified in private equity and where do you see the industry headed moving forward?
Megan Loehner: I see a few trends, more toward small to mid-market buyouts and less in large-cap or mega buyouts. Also I’ve seen a move to more concentrated private equity portfolios, trying to decrease the number of GPs within a portfolio and committing more to those where they have more conviction. This is harder for the larger institutions out there who have billions in private equity that they have to deploy and can’t get the allocations they seek.
The largest continuing trend I’ve seen is toward co-investments. We started doing co-investments around 2010 and really ramped that process up in the last few years. We were one of only a few asking for co-investments back then. Now there's ten or fifteen other LP's we have to split co-investment allocations with.
Trusted Insight: Private markets take more time to vet than the public market due to the lack of quantifiable metrics. How challenging is that on a team of two?
Megan Loehner: I think it would be just as challenging for a team of twenty-two. It's challenging for anyone in general to actually get some kind of benchmark data to make a quantifiable decision. With a team of two, we've found a way that works for us.
We start by looking at the total universe of funds raising and then screen by the type of mandate we are looking to add to our portfolio. Next, we interview 10 to 20 managers, focusing only on a consistent, repeatable investment process. Once we get it narrowed down to a workable group we dive into the cash flows creating their performance and compare it against a variety of benchmark data. We reach out to other contacts in the industry to hear their views on our final list. While we may miss some good managers, this process helps us to find a good manager who we believe will perform well on a consistent basis and whose team and process we believe in.
To find that true quantifiable data, I think we're all kidding ourselves because there's just no great benchmark data. We usually have to use multiple data sources and reach out to others in the industry. We learn a lot from doing reference calls or reaching out to our current managers. We utilize managers to the Nth degree, from our private debt managers who lend to private equity firms to fund-of-fund relationships who may have their own creation of benchmark data.
With a team of two it is hard, but again it is hard for everyone. I think if there is a good process in place, good decisions can be made.
Trusted Insight: What do you look for in an investment manager, and how does that differ between public and private?
Megan Loehner: That’s easy, a good organization with a consistent, thought-through process that can be repeated over time with good performance. With public managers we tend to start with performance as this data is widely available and easy to screen. From there, we move to the interviews focusing on their investment process.
Trusted Insight: What challenges do you face or do pension fund investment offices face that are unique to local pension funds?
Megan Loehner: The largest challenge I think all pension plans are dealing with today are the individuals who challenge pensions and the benefits that are provided. These individuals think the cost is too much for employees and taxpayers, and would rather just have that amount added to their paycheck. I believe these individuals don’t quite understand pensions and the underlying benefits they provide to not only the recipients, but to families and communities as well. This lack of understanding is creating a need for increased knowledge to these individuals, the general public, politicians and the media.
For instance, I was having a conversation with my uncle and he was talking about how his pension “isn’t what it used to be” because new hires are now required to contribute 4% of their paycheck toward the cost of their pension. He believed this was significant as his contribution rate is 0%. He went on to tell me that he thought the new employees were now funding 100% of their contribution rate, and it was news to him that his employer was actually funding the bulk of the contribution.
Many people don’t understand the math on what they would actually receive over a lifetime compared to what they contribute to their pension. It’s not that the systems don’t relay these important messages, sometimes the small negatives or the overbearing bold print on the front of the newspaper overshadows the large positives within the fine print, and sometimes there’s a disconnect in the desire to understand.
It can be challenging to influence the younger generations who are typically fresh to the job market and would rather just have that contribution amount added back to their paycheck. Meanwhile, their 50+ year-old counterpart is just realizing how glad they are to have a pension plan. Everyday pension systems are fighting the negative press, while communicating to members the benefits, but systems can only educate those who actually want to hear it and understand it. The rest who choose to ignore and remain uneducated and criticize pensions will only hurt those who value them and those who want a secure retirement. If pensions are taken away, this could potentially lead to a retirement crisis, and who is going to fund that?
Trusted Insight: Who do you consider your peers to be within the industry, and what sets you apart from them?
Megan Loehner: I'd say our peers are all institutional investors. They're the endowments and foundations, family offices, and the other public pension plans. We are all asset allocators, and we are all trying to create an asset allocation that works for the goals we have in place.
I believe we are small compared to some of our peers, and we don’t use a consultant. Brian and I are each other’s consultants. We keep our portfolio concentrated in managers we have conviction in, and as I mentioned, we heavily utilize our relationships in the industry. We have a very small portfolio, about fifty different managers. This, in turn, allows us to have open communication on an ongoing basis with our managers, which helps maintain those strong relationships.
Trusted Insight: You've spent the past about six and a half years at Missouri Local Government ERS and before that you were with Missouri Public Schools. What drew you to institutional finance and particularly the pension fund industry?
Megan Loehner: I credit my current CIO, Brian Collett, who actually hired me as an intern 10 years ago and my previous employer for taking a chance on me. Although my background was in accounting, I spent the summer working in investments. After school resumed that fall, I was signed on at a local accounting firm and was scheduled to begin as a full time auditor after graduation. However, the Teachers’ Retirement System in Missouri reached out to me as they saw my background with MOLAGERS and asked if I’d be interested in interviewing with them.
I really enjoyed my time that I spent interning here at MOLAGERS and found the industry interesting and most of all ever-changing, which was good because I love learning. And I love numbers, obviously since I focused on accounting, but I was a little unsure as I had minimal exposure to finance classes. However, finance and accounting have many similarities, especially in private equity where there are so many operational aspects as well as financial statement reviews. So I started my career working in private equity at the Teacher's Retirement System. Three years later when MOLAGERS was looking to add someone to the team, Brian called me up and asked me to come back and the rest is history. It was a great opportunity to expand my knowledge base and be part of the decision making process.
I really have to thank Brian for opening my eyes to the finance industry. Since then, we continue to hire interns to help educate others about institutional finance and the pension industry because there’s just not wide enough knowledge about the industry in the university setting.
Megan Loehner: I agree with the latter. I think there is definitely an awareness issue in the financial industry, but especially the pension industry. Women got a late start into finance. I believe many tend to go down a career path that they have been exposed to in some way, whether it’s a family member’s career or reading about it. Fifty years ago, there were fewer women in the workforce; and of those women there were proportionally fewer in the finance industry than, say, in nursing. Consequently, women have less exposure to the finance industry than other females who they may follow. This, combined with a lesser knowledge of the pension industry in general, causes an awareness issue.
Acknowledging that the pension industry even exists is definitely the starting point. Also, finance is much more time-demanding than some other careers. Women, in general, tend to be the main caregivers of their families, and I think some women choose other careers because of the demands of this one. The old beliefs of the man having to be the one to support his family have been changing over the last fifty years. I know I would not be where I am today without my husband’s patience and support.
Trusted Insight: What advice would you give young women who want to enter the industry?
Megan Loehner: Keep grounded and encourage each other. As this is a male dominated industry, it's very easy to view other women as competition. We just all need to be supportive of each other. Being a woman isn't our best attribute, it's being a good investor. You need to focus on expanding your skills, and that's really what will get you to be where you want to be. Focus on your end goal and career. Help build up those around you. Building others up helps build the whole team up, and in turn performance will increase.
Trusted Insight: What have I failed to ask you that I should know about you, the pension fund investment office or about pension funds in general?
Megan Loehner: I think the purpose of pension funds gets lost when others try to view different pension plans as competitors. We are not competing against each other, we all have different assumed rates of return, and in turn we have different asset allocations and different risk targets. You start comparing apples to oranges once you start comparing returns.
To learn more about women in institutional investing, view the full list of Top 30 Women Rising Stars In Institutional Investing.
Ms. Loehner was recently named to Trusted Insight’s Top 30 Women Rising Stars in Institutional Investing. She graciously spoke to Trusted Insight on August 16.
In this interview Loehner discusses how an investment team of two vets private market assets, the challenges of working within the often misunderstood pension fund industry and MOLAGERS strategy for recruiting talent.
The following interview has been edited and condensed for clarity.
Trusted Insight: You are on an investment team of two. What's the team dynamic? How's the work divided?
Megan Loehner: There is no division, there are no silos. We work as one team. We actually have a group of four, two focused on investments and two focused on the operational aspects of the investments. We brought on the operations team about five years ago. The dynamics of our team are very intertwined as we all work together on every deal. It helps to put the mosaic together. There is very little separation of duties between Brian and me. We both work on everything, from long-term capital market assumptions to manager selection. It just depends on who has the time to actually lead the process versus just being there for support.
None of us are perfect, so we try to hire others who complement us. In areas I feel I am weak, Brian is strong and vice versa. We continued to do this as we brought on the operations team and as we look to hire in the future. This isn’t just to complement our skill set, it’s personality as well. Because this industry is very demanding and because we have a small team, we don’t have time to deal with personalities that don’t fit well. We are a very transparent group, and that requires a lot of trust. Voicing opinions is a requirement in our team so we must trust that we can be honest with each other and not feel punished for voicing our views.
Trusted Insight: What areas of the market are you optimistic about, and conversely what are you pessimistic about?
Megan Loehner: That's a hard one. This is just my general take, but I like private markets. They tend to be a little bit more profitable, interesting and hands-on in terms of working with those investments and helping to diversify the portfolio away from the public market. Private equity, private real estate and our other private managers have done well for our portfolio. I believe this area will continue to help the return profile of our overall portfolio.
As for pessimistic, creating alpha in the public markets has been hard to do especially in large-cap equity, and we are trying to work through this now. We're starting to move away from the traditional long-only managers and starting to do more portable alpha mandates.
Trusted Insight: You've been following private equity for nearly a decade. What trends have you identified in private equity and where do you see the industry headed moving forward?
Megan Loehner: I see a few trends, more toward small to mid-market buyouts and less in large-cap or mega buyouts. Also I’ve seen a move to more concentrated private equity portfolios, trying to decrease the number of GPs within a portfolio and committing more to those where they have more conviction. This is harder for the larger institutions out there who have billions in private equity that they have to deploy and can’t get the allocations they seek.
The largest continuing trend I’ve seen is toward co-investments. We started doing co-investments around 2010 and really ramped that process up in the last few years. We were one of only a few asking for co-investments back then. Now there's ten or fifteen other LP's we have to split co-investment allocations with.
Trusted Insight: Private markets take more time to vet than the public market due to the lack of quantifiable metrics. How challenging is that on a team of two?
Megan Loehner: I think it would be just as challenging for a team of twenty-two. It's challenging for anyone in general to actually get some kind of benchmark data to make a quantifiable decision. With a team of two, we've found a way that works for us.
We start by looking at the total universe of funds raising and then screen by the type of mandate we are looking to add to our portfolio. Next, we interview 10 to 20 managers, focusing only on a consistent, repeatable investment process. Once we get it narrowed down to a workable group we dive into the cash flows creating their performance and compare it against a variety of benchmark data. We reach out to other contacts in the industry to hear their views on our final list. While we may miss some good managers, this process helps us to find a good manager who we believe will perform well on a consistent basis and whose team and process we believe in.
To find that true quantifiable data, I think we're all kidding ourselves because there's just no great benchmark data. We usually have to use multiple data sources and reach out to others in the industry. We learn a lot from doing reference calls or reaching out to our current managers. We utilize managers to the Nth degree, from our private debt managers who lend to private equity firms to fund-of-fund relationships who may have their own creation of benchmark data.
With a team of two it is hard, but again it is hard for everyone. I think if there is a good process in place, good decisions can be made.
Trusted Insight: What do you look for in an investment manager, and how does that differ between public and private?
Megan Loehner: That’s easy, a good organization with a consistent, thought-through process that can be repeated over time with good performance. With public managers we tend to start with performance as this data is widely available and easy to screen. From there, we move to the interviews focusing on their investment process.
Many people don’t understand the math on what they would actually receive over a lifetime compared to what they contribute to their pension. It’s not that the systems don’t relay these important messages, sometimes the small negatives or the overbearing bold print on the front of the newspaper overshadows the large positives within the fine print, and sometimes there’s a disconnect in the desire to understand.Many people don’t understand the math on what they would actually receive over a lifetime compared to what they contribute to their pension. It’s not that the systems don’t relay these important messages, sometimes the small negatives or the overbearing bold print on the front of the newspaper overshadows the large positives within the fine print, and sometimes there’s a disconnect in the desire to understand. Whereas on the private side, we tend to start with the investment process interview and then we end with performance. It reverses due to the lack of consistency in data reporting for private funds as opposed to public funds so we want to narrow the universe down as far as we can before having to scrub the data.
Trusted Insight: What challenges do you face or do pension fund investment offices face that are unique to local pension funds?
Megan Loehner: The largest challenge I think all pension plans are dealing with today are the individuals who challenge pensions and the benefits that are provided. These individuals think the cost is too much for employees and taxpayers, and would rather just have that amount added to their paycheck. I believe these individuals don’t quite understand pensions and the underlying benefits they provide to not only the recipients, but to families and communities as well. This lack of understanding is creating a need for increased knowledge to these individuals, the general public, politicians and the media.
For instance, I was having a conversation with my uncle and he was talking about how his pension “isn’t what it used to be” because new hires are now required to contribute 4% of their paycheck toward the cost of their pension. He believed this was significant as his contribution rate is 0%. He went on to tell me that he thought the new employees were now funding 100% of their contribution rate, and it was news to him that his employer was actually funding the bulk of the contribution.
Many people don’t understand the math on what they would actually receive over a lifetime compared to what they contribute to their pension. It’s not that the systems don’t relay these important messages, sometimes the small negatives or the overbearing bold print on the front of the newspaper overshadows the large positives within the fine print, and sometimes there’s a disconnect in the desire to understand.
It can be challenging to influence the younger generations who are typically fresh to the job market and would rather just have that contribution amount added back to their paycheck. Meanwhile, their 50+ year-old counterpart is just realizing how glad they are to have a pension plan. Everyday pension systems are fighting the negative press, while communicating to members the benefits, but systems can only educate those who actually want to hear it and understand it. The rest who choose to ignore and remain uneducated and criticize pensions will only hurt those who value them and those who want a secure retirement. If pensions are taken away, this could potentially lead to a retirement crisis, and who is going to fund that?
Trusted Insight: Who do you consider your peers to be within the industry, and what sets you apart from them?
Megan Loehner: I'd say our peers are all institutional investors. They're the endowments and foundations, family offices, and the other public pension plans. We are all asset allocators, and we are all trying to create an asset allocation that works for the goals we have in place.
I believe we are small compared to some of our peers, and we don’t use a consultant. Brian and I are each other’s consultants. We keep our portfolio concentrated in managers we have conviction in, and as I mentioned, we heavily utilize our relationships in the industry. We have a very small portfolio, about fifty different managers. This, in turn, allows us to have open communication on an ongoing basis with our managers, which helps maintain those strong relationships.
Trusted Insight: You've spent the past about six and a half years at Missouri Local Government ERS and before that you were with Missouri Public Schools. What drew you to institutional finance and particularly the pension fund industry?
Megan Loehner: I credit my current CIO, Brian Collett, who actually hired me as an intern 10 years ago and my previous employer for taking a chance on me. Although my background was in accounting, I spent the summer working in investments. After school resumed that fall, I was signed on at a local accounting firm and was scheduled to begin as a full time auditor after graduation. However, the Teachers’ Retirement System in Missouri reached out to me as they saw my background with MOLAGERS and asked if I’d be interested in interviewing with them.
I really enjoyed my time that I spent interning here at MOLAGERS and found the industry interesting and most of all ever-changing, which was good because I love learning. And I love numbers, obviously since I focused on accounting, but I was a little unsure as I had minimal exposure to finance classes. However, finance and accounting have many similarities, especially in private equity where there are so many operational aspects as well as financial statement reviews. So I started my career working in private equity at the Teacher's Retirement System. Three years later when MOLAGERS was looking to add someone to the team, Brian called me up and asked me to come back and the rest is history. It was a great opportunity to expand my knowledge base and be part of the decision making process.
I really have to thank Brian for opening my eyes to the finance industry. Since then, we continue to hire interns to help educate others about institutional finance and the pension industry because there’s just not wide enough knowledge about the industry in the university setting.
As this is a male dominated industry, it's very easy to view other women as competition. We just all need to be supportive of each other. Being a woman isn't our best attribute, it's being a good investor.Trusted Insight: Going off your answer, this is a traditionally male dominated industry. Is there a barrier to entry for women in particular or is it just more needing to raise an awareness to everyone that institutional finance can be intellectually and financially stimulating?
Megan Loehner: I agree with the latter. I think there is definitely an awareness issue in the financial industry, but especially the pension industry. Women got a late start into finance. I believe many tend to go down a career path that they have been exposed to in some way, whether it’s a family member’s career or reading about it. Fifty years ago, there were fewer women in the workforce; and of those women there were proportionally fewer in the finance industry than, say, in nursing. Consequently, women have less exposure to the finance industry than other females who they may follow. This, combined with a lesser knowledge of the pension industry in general, causes an awareness issue.
Acknowledging that the pension industry even exists is definitely the starting point. Also, finance is much more time-demanding than some other careers. Women, in general, tend to be the main caregivers of their families, and I think some women choose other careers because of the demands of this one. The old beliefs of the man having to be the one to support his family have been changing over the last fifty years. I know I would not be where I am today without my husband’s patience and support.
Trusted Insight: What advice would you give young women who want to enter the industry?
Megan Loehner: Keep grounded and encourage each other. As this is a male dominated industry, it's very easy to view other women as competition. We just all need to be supportive of each other. Being a woman isn't our best attribute, it's being a good investor. You need to focus on expanding your skills, and that's really what will get you to be where you want to be. Focus on your end goal and career. Help build up those around you. Building others up helps build the whole team up, and in turn performance will increase.
Trusted Insight: What have I failed to ask you that I should know about you, the pension fund investment office or about pension funds in general?
Megan Loehner: I think the purpose of pension funds gets lost when others try to view different pension plans as competitors. We are not competing against each other, we all have different assumed rates of return, and in turn we have different asset allocations and different risk targets. You start comparing apples to oranges once you start comparing returns.
To learn more about women in institutional investing, view the full list of Top 30 Women Rising Stars In Institutional Investing.