Mississippi PERS CIO Lorrie Tingle: No 'Silver Bullet' For Pensions Has Been Found Yet | Exclusive Q&A
Lorrie Tingle is the chief investment officer at the Public Employees’ Retirement System of Mississippi (MSPERS). She has been in this role since 1996, planning and directing the activities for the pension fund's $24 billion investments to ensure the prudent management of the investment assets. Tingle holds an MBA from Mississippi College and a bachelor's degree in geology from the University of Alabama.
During her tenure as chief investment officer, MSPERS’ investment allocation transitioned from all-U.S. public markets to international equities and alternative assets. Yet, it remains a fairly conservative position in investment approach compared to other alternative-heavy pension funds. In this interview, Tingle discusses the evolution of MSPERS’ portfolio from the early 1990s to today and the decision-making at her investment office.
Ms. Tingle was recently named on Trusted Insight’s Top 30 Public Pension Chief Investment Officers. She graciously spoke with us on November 18, 2016.
Trusted Insight: Can you tell me a little about the history of Mississippi PERS? How has the pension portfolio changed over time?
Lorrie Tingle: I started with the retirement system in 1991 as an analyst and became CIO in 1996. The most broad-based change during my tenure has been the expansion on non-U.S. exposure in the portfolio. In the early 1990s, the MSPERS portfolio was invested exclusively in U.S. public markets -- and was limited to only equities and fixed income. We expanded into international equities not long after I came to the system. Today, non-U.S. exposure is across the whole platform. It's now in the public and private equity portfolios, fixed income and, to a limited degree, our real estate portfolio.
The change that has made the biggest impact on the MSPERS program was the addition of alternative investments. Because historically we have had to deal with statutory constraints governing portfolio composition, it took us much longer than most public pensions to be able to invest in alternatives. We didn’t add real estate to the portfolio until 2005 and our first commitments to private equity weren’t made until 2008, so we were a bit of an outlier compared to our peers. The MSPERS investment program has evolved over time to where we are today, which is much closer to the traditional public plan model.
Trusted Insight: What’s the makeup of your investment team?
Lorrie Tingle: Currently, I have a staff of four, who do a great job overseeing the portfolio on a day-to-day basis. Each staff member is assigned responsibility for one or more specific asset classes. Because staff resources are limited, the each member of the investment team is responsible for covering everything within his or her assigned sleeve of the MSPERS portfolio.
Trusted Insight: How do you make investment decisions as a team?
Lorrie Tingle: Staff takes investment-related recommendations to the MSPERS Board of Trustees for their approval. The Board ultimately approves all manager hires and fires, and asset allocation targets.
We work with our investment consultant on asset allocation modelling projects and when conducting manager searches. We use their investment manager database as our starting point for searches.
Trusted Insight: Your current portfolio is still heavily invested in public equities and fixed income. Given the current low-return environment, are you looking to increase allocation in alternative assets?
Lorrie Tingle: Ideally yes, but it's going to take a change of the controlling laws. We have legal limits on the exposure we can have to real estate and private equity. We're at those maximums right now, so it's going to take getting some relief from the legislature in order to do that.
I would argue selecting the right investment approach isn’t a one-size-fits-all decision.
Trusted Insight: What are your legal limits?
Lorrie Tingle: Like other pension plans, MSPERS is governed by state law. Years ago, most states moved away from being governed by what was referred to as a “legal list” -- basically a set of laws listing the types of investments a pension could (or could not) make. The “legal list” was typically replaced with the “prudent-person standard” which provided much more latitude to investment boards and staffs.
Unfortunately, Mississippi has chosen to keep the “legal limits” constraints, so we have both maximum exposure limits at the asset class level, and then a laundry list of investments allowable within each asset class. For example, we have a 10 percent maximum exposure limit to real estate investments and we must invest in private real estate through a multi-investor fund structure. Similarly, each asset class has a list of restrictions we must consider before authorizing an investment.
At the asset class level, our maximum exposure limits are 80 percent for public equities, and 10 percent in private real estate. Fixed income exposure is unlimited, and we have a 10 percent opportunistic bucket which is currently used for our private equity allocation.
Trusted Insight: What's your view on applying the endowment model to public pensions?
Lorrie Tingle: Today more than ever before during my tenure as a CIO, there are many different schools of thought as to the appropriate investment model for public pension plans. Some plans have completely embraced the alternative heavy endowment model; some have implemented risk parity programs in varying degree and are employing leverage to try to achieve their target returns. At the other extreme, at least one large public pension has moved almost completely away from private market investments and is using only passive strategies for its public market exposures. It will really be interesting to look back 20 years from now to see which of these approaches worked out best.
I would argue selecting the right investment approach isn’t a one-size-fits-all decision. In deciding on the appropriate investment model for a plan, I believe every CIO has to look at their particular situation, including plan funding, participant demographics, annual liquidity needs and their available staff resources to identify the approach that makes sense for their plan long term.
The MSPERS portfolio is run as a traditional program with our 20 percent in alternatives limited to real estate and private equity only. I have never been a proponent of the endowment model. We don’t invest in hedge funds. I can’t see the risk and return profile offered by hedge funds as worth the high fees and headaches those investments often bring.
So far we have managed to do pretty well with our relatively simple portfolio structure.
Trusted Insight: You've been the chief investment officer for 20 years now. Are there any trends or changes that you find interesting within the public pension industry?
Lorrie Tingle: Public pensions are facing some serious headwinds -- returns are low and funding is challenged at most plans, if not all plans. I think that the biggest challenge we all have is trying to achieve our assumed rate of return, and for us it's 7.75 percent. As I mentioned before, a number of different strategic models are being implemented by public pensions today. Everyone is trying to find a way to protect their funds on the downside without dampening returns too much. Unfortunately nobody seems to have found a silver bullet for the problems CIOs are facing.
As far as interesting trends, the age-old active/passive debate rages on once again, and some plans have significantly increased their passive exposure. It’s tempting when active managers struggle for a prolonged period, but we’ve been through those periods before. The pendulum always swings back the other way, so we’re holding our current passive allocations steady.
Hedge funds seem to be the new “130-30.” They were the rage at every conference and now many investors—including some endowments-- are reducing or eliminating their allocations. Like 130-30 strategies, soon we may not hear anything more about hedge funds. Smart beta and low volatility strategies are getting a lot of attention these days. We’ve looked at about a number of smart beta approaches, but have not made a decision to move that way so far.
Trusted Insight: Can you speak a little to your investments before and after 2008? Were there any significant changes?
Lorrie Tingle: No, not really, other than the fact that we had just launched our private equity program in 2008. Our real estate program was also just beginning. It was about three years old -- so it was still in the early investment phase. At the time it was a little scary because we were moving into asset classes that were very new to us. Since that time both programs have actually grown, and they provided our best performance last year.
One change since 2008 is that we broadened our fixed income portfolio exposures to take advantage of more opportunities in fixed income global, knowing that the interest rate regimes in all markets will not be 100 percent in sync. The addition of both international and high-yield exposures in the fixed income portfolio are the biggest changes we’ve made since 2008.
Trusted Insight: Your earlier education (majored in geology) is quite unconventional for an investor. What career advice do you have for somebody who has a non-traditional background but wants to get into institutional investing?
Lorrie Tingle: I don’t think I’m that unique. Many people I meet in this business have backgrounds in engineering, math and science. The analytical training you get in those fields of study is a perfect foundation for work in this business.
With that said, you've got to have the business fundamentals to understand what makes markets work and what makes companies successful or unsuccessful investments. I think an MBA is definitely beneficial. I'm also a big believer in the CFA program. It provides a strong foundation in investment theory and can helps you master many the concepts associated with finance and investment management.
Trusted Insight: When did you realize you were going to work in finance?
Lorrie Tingle: After seven year as an exploration geologist, I made a major career move in the late-1980s, and began working in the investment arena. I found it absolutely fascinating. It was by chance that I got to know some great people in this industry, and really got interested in learning about portfolio management and specifically pension investing. I’m very lucky to have been given the opportunity to serve as the CIO here at MSPERS.
For me, the public sector is a great place. A lot of people these days who are leaving big investment shops and looking for opportunities at public plans. I think it’s great. While the public sector may not offer the best-paying jobs in this industry, there are other benefits. For example, you know what you do directly impacts the quality of life of many hard-working people who have dedicated their careers to public service in your state. At the end of the day, that’s by far the most gratifying part of my job.
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