Ryan Morse is a Director of Alternative Investments at the Pennsylvania State Employees' Retirement System (SERS), where he has served since 2018. Previously, he was an Investment Officer of Private Equity at NYS Teachers’ Retirement System, where he served for over 5 years. Prior to that, he was a semiconductor research technician at the Research Foundation of SUNY. Morse holds an MBA from Rensselaer Polytechnic Institute and a B.S. in Mathematics from the University at Albany.
In this interview, he discussed the strength of their private equity program, having been one of the first public pension investors in PE in the early 1980s; how pension plans are finding creative ways to work with venture capital; and how their private credit portfolio has got off to a successful start.
Ryan Morse was named to Trusted Insight's 2021 Top Public Pension Investment Directors.
Trusted Insight: Can you tell us about PA SERS and your role at its investment office?
Ryan Morse: Today, PA SERS has about $38 billion in assets under management and we have a small team of about a dozen people managing the investments. I’m a director of alternative investments and we have five people on our team. Our team is responsible for a little over 20% of total assets covering private equity, private credit, and real estate as well.
Trusted Insight: Private investments will continue to develop in the next 5-10 years. How does private market investing impact PA SERS’ institutional portfolio?
Ryan Morse: Private markets tend to take a little more time and attention compared to the other asset classes. That's part of the reason for the relatively larger team. I'd say we are going slightly in the opposite direction of some of our pension plan peers, but that's because we started at a much higher level. At the end of 2019, we actually had a 16% target for private equity at PA SERS. Many other public plans today seem to be bumping their allocation up to the high single-digit percentage allocations for private equity and we've gone in the opposite direction. Today, we're at a 12% target and it’s certainly an important part of the plan. We also have a 4% allocation to private credit, which was initiated in 2017. I joined SERS shortly after private credit became an asset class, so I've had the interesting experience of starting a private credit portfolio from scratch.
In terms of impact on our portfolio, private markets have been fantastic. PA SERS was one of the first public pension investors in private equity in the early 1980s. Since inception, we have a little over a 12% net IRR going on 40 years and PE has distributed over $6 billion more than we’ve contributed. In calendar year 2020, our private equity portfolio returned just shy of a 30% net IRR.
Private credit has been great as well. That portfolio started in 2017 so we’re still in the super early days, but that's running at a high teens net IRR for us. We expect that to trend down a bit as time goes on, but private credit is off to a very strong start for us. Real estate has been mixed for us over time, but it was a bit of an unloved asset class for a while until the last five years or so. It's making a comeback, but still a work in progress.
Trusted Insight: LPs are discussing how excited they are about building out their venture and innovation programs to collaborate with more disruptive startups. Does similar discussion occur at PA SERS?
Ryan Morse: We had a few good VC names in the private equity portfolio for a while, but it has been de-emphasized by SERS over the past 5+ years. I think, in part, this is because a lot of people got burned in the tech bubble, the people that were some of the original investors in private equity at pension funds. Many of them saw some of the worst of VC and never wanted to go back.
Speaking from the perspective of a large public pension, there are ways to be creative with venture investing and some pension funds are definitely finding ways to pursue it. I like to keep an eye on VC to see if there are any interesting trends, but I don’t find myself focusing on it here since the investments tend to be a bit too small for us. We have been able to successfully catch some of the tail end of those VC returns with investments in growth equity and small buyout managers.
Trusted Insight: LPs have adapted to the recent tech surge by working from home and using Zoom and other tools. Has there been talks of PA SERS implementing machine learning or robotic process automation tools to its investment process?
Ryan Morse: I'd say we're not at that point yet. On the topic of work from home, one interesting anecdote for me is that I keep track of the meetings I take and, in 2020, I had more meetings than 2018 and 2019 combined. That trend has continued into 2021. Thinking about the time that’s spent traveling and attending in-person meetings, there's a lot of inefficiency there. During the pandemic, we’ve certainly embraced widespread use of video conferencing technology at SERS. As with most things, there's going to be some hybrid approach going forward where not every meeting is going to be an in-person meeting. In terms of SERS implementing technology in the way of an RPA and whatnot, we're not there yet. Just two years ago, we switched to paper-free meetings. Prior to that, we were still printing dozens of copies of materials for all our board meetings and we had eight board meetings per year at that time.
It's interesting that you bring up RPA and things like that because some of our tech managers in private equity are focused on those things. It seems to be where basically everything is heading. What was it? About 10 years ago, we heard the now-famous quote, “Software is eating the world.” I think that’s inevitable, but at this time, PA SERS is not at a point of implementing those types of technologies. However, we certainly take advantage of technology and process improvement where we can.
Trusted Insight: Previously, you were at NYS Teachers’ for over 5 years. What kept you investing on behalf of a pension system? What were some of the lessons learned there?
Ryan Morse: I feel even more of a sense of responsibility that my decisions are going to be impacting so many people. If I'm making a decision to recommend an investment in private markets, it's typically a long-term commitment and there's an impact well into the future from that decision. If those investments don't perform well, there are repercussions all around. The taxpayers could be on the hook for more money or the pensioners could end up getting their checks cut back. That'd obviously be the worst-case scenario. I think about those things as reasons for staying grounded and always recognizing that what I'm doing is having a lasting impact on the pension plan.
One thing that I took away from my time at New York State Teachers is that when people started investing in private equity, it was a bit of a free for all. Many organizations were committing to tons of funds as they were chasing new and growing targets to private equity. That's what I've seen a bit from my time at both NYSTRS and PA SERS, where there were almost unwieldy portfolios that were built during the early 2000s. My time at both organizations has been spent slowly trimming down the private equity portfolios by making larger commitments to fewer managers, doubling down on our best managers.
At SERS, when we started the private credit portfolio in 2017, we made a very conscious decision to start the portfolio with fewer and larger check sizes in an effort to keep the investment manager count down and focus on our best opportunities. It was a unique opportunity to start with a blank canvas and build a portfolio based on the lessons learned from those mature private equity portfolios. That's been working really well for us.
Trusted Insight: Looking at your bio, you were a semiconductor research technician, and you also have a background in mathematics. Did you ever plan on landing an LP role?
Ryan Morse: I certainly didn’t have a plan to be in investments; I'll tell you that. I’ve always had an affinity for technology. I grew up in the age where we didn't have it, or it was very nascent, and now it's ubiquitous. When I went to college, I thought I'd be a computer science major and that lasted exactly one semester. I then switched to math, because I figured that's universal, no matter what you do, you probably have to use some math. I also minored in physics, so I had a poor man's engineering degree. That led me to the semiconductor research role that was part of the SUNY Albany campus at the time.
At that point in my life, I had heard of the term “pension”, but I never thought about the behind the scenes, investment management aspect of a pension though. I eventually stumbled upon that. A good friend of mine, who I've known for 20 years now, started working at New York State Teachers out of undergrad. We would talk about his role and I would think, “That sounds pretty interesting."
As I worked as a semiconductor research technician, I started dabbling in the stock market. The more I learned about investments and the more I talked with my friend, eventually, I thought, "That sounds way better than what I'm doing." I made the decision to go back to school, get an MBA, and attempt to get into investments somehow, anyhow. I quit my job and went back to school full time. During my MBA program, I was lucky enough to get an internship at New York State Teachers. When I graduated later that year, I joined NYSTRS’ private equity team and the rest is history.
Trusted Insight: What topics do you feel should be addressed more when we speak with your pension director peers?
Ryan Morse: I think it'll be interesting to hear how other people are thinking about the remote working aspect of the job as that transition is happening in real-time. For me personally, it will involve having some type of hybrid model where we're not in the office five days a week, maybe a couple of days a week. I’d like to hear what my peers are thinking about as far as the future of the workplace.
A secondary effect of remote working is the impact on team building. How do you build a close team environment when you don't have that 40 hours per week of “forced interaction” with people at the office? Especially as it pertains to developing junior members of the team. That's an issue that people like myself and other more senior people will have to solve.
View our full catalog of interviews here.
The full list of 2021 Top Public Pension Investment Directors can be found here.
In this interview, he discussed the strength of their private equity program, having been one of the first public pension investors in PE in the early 1980s; how pension plans are finding creative ways to work with venture capital; and how their private credit portfolio has got off to a successful start.
Ryan Morse was named to Trusted Insight's 2021 Top Public Pension Investment Directors.
Trusted Insight: Can you tell us about PA SERS and your role at its investment office?
Ryan Morse: Today, PA SERS has about $38 billion in assets under management and we have a small team of about a dozen people managing the investments. I’m a director of alternative investments and we have five people on our team. Our team is responsible for a little over 20% of total assets covering private equity, private credit, and real estate as well.
Trusted Insight: Private investments will continue to develop in the next 5-10 years. How does private market investing impact PA SERS’ institutional portfolio?
"PA SERS was one of the first public pension investors in private equity in the early 1980s. Since inception, we have a little over a 12% net IRR going on 40 years..."
Ryan Morse: Private markets tend to take a little more time and attention compared to the other asset classes. That's part of the reason for the relatively larger team. I'd say we are going slightly in the opposite direction of some of our pension plan peers, but that's because we started at a much higher level. At the end of 2019, we actually had a 16% target for private equity at PA SERS. Many other public plans today seem to be bumping their allocation up to the high single-digit percentage allocations for private equity and we've gone in the opposite direction. Today, we're at a 12% target and it’s certainly an important part of the plan. We also have a 4% allocation to private credit, which was initiated in 2017. I joined SERS shortly after private credit became an asset class, so I've had the interesting experience of starting a private credit portfolio from scratch.
In terms of impact on our portfolio, private markets have been fantastic. PA SERS was one of the first public pension investors in private equity in the early 1980s. Since inception, we have a little over a 12% net IRR going on 40 years and PE has distributed over $6 billion more than we’ve contributed. In calendar year 2020, our private equity portfolio returned just shy of a 30% net IRR.
"Speaking from the perspective of a large public pension, there are ways to be creative with venture investing and some pension funds are definitely finding ways to pursue it."
Private credit has been great as well. That portfolio started in 2017 so we’re still in the super early days, but that's running at a high teens net IRR for us. We expect that to trend down a bit as time goes on, but private credit is off to a very strong start for us. Real estate has been mixed for us over time, but it was a bit of an unloved asset class for a while until the last five years or so. It's making a comeback, but still a work in progress.
Trusted Insight: LPs are discussing how excited they are about building out their venture and innovation programs to collaborate with more disruptive startups. Does similar discussion occur at PA SERS?
Ryan Morse: We had a few good VC names in the private equity portfolio for a while, but it has been de-emphasized by SERS over the past 5+ years. I think, in part, this is because a lot of people got burned in the tech bubble, the people that were some of the original investors in private equity at pension funds. Many of them saw some of the worst of VC and never wanted to go back.
Speaking from the perspective of a large public pension, there are ways to be creative with venture investing and some pension funds are definitely finding ways to pursue it. I like to keep an eye on VC to see if there are any interesting trends, but I don’t find myself focusing on it here since the investments tend to be a bit too small for us. We have been able to successfully catch some of the tail end of those VC returns with investments in growth equity and small buyout managers.
"Thinking about the time that’s spent traveling and attending in-person meetings, there's a lot of inefficiency there. During the pandemic, we’ve certainly embraced widespread use of video conferencing technology at SERS."
Trusted Insight: LPs have adapted to the recent tech surge by working from home and using Zoom and other tools. Has there been talks of PA SERS implementing machine learning or robotic process automation tools to its investment process?
Ryan Morse: I'd say we're not at that point yet. On the topic of work from home, one interesting anecdote for me is that I keep track of the meetings I take and, in 2020, I had more meetings than 2018 and 2019 combined. That trend has continued into 2021. Thinking about the time that’s spent traveling and attending in-person meetings, there's a lot of inefficiency there. During the pandemic, we’ve certainly embraced widespread use of video conferencing technology at SERS. As with most things, there's going to be some hybrid approach going forward where not every meeting is going to be an in-person meeting. In terms of SERS implementing technology in the way of an RPA and whatnot, we're not there yet. Just two years ago, we switched to paper-free meetings. Prior to that, we were still printing dozens of copies of materials for all our board meetings and we had eight board meetings per year at that time.
It's interesting that you bring up RPA and things like that because some of our tech managers in private equity are focused on those things. It seems to be where basically everything is heading. What was it? About 10 years ago, we heard the now-famous quote, “Software is eating the world.” I think that’s inevitable, but at this time, PA SERS is not at a point of implementing those types of technologies. However, we certainly take advantage of technology and process improvement where we can.
Trusted Insight: Previously, you were at NYS Teachers’ for over 5 years. What kept you investing on behalf of a pension system? What were some of the lessons learned there?
Ryan Morse: I feel even more of a sense of responsibility that my decisions are going to be impacting so many people. If I'm making a decision to recommend an investment in private markets, it's typically a long-term commitment and there's an impact well into the future from that decision. If those investments don't perform well, there are repercussions all around. The taxpayers could be on the hook for more money or the pensioners could end up getting their checks cut back. That'd obviously be the worst-case scenario. I think about those things as reasons for staying grounded and always recognizing that what I'm doing is having a lasting impact on the pension plan.
"At SERS, when we started the private credit portfolio in 2017... It was a unique opportunity to start with a blank canvas and build a portfolio based on the lessons learned from those mature private equity portfolios. That's been working really well for us."
One thing that I took away from my time at New York State Teachers is that when people started investing in private equity, it was a bit of a free for all. Many organizations were committing to tons of funds as they were chasing new and growing targets to private equity. That's what I've seen a bit from my time at both NYSTRS and PA SERS, where there were almost unwieldy portfolios that were built during the early 2000s. My time at both organizations has been spent slowly trimming down the private equity portfolios by making larger commitments to fewer managers, doubling down on our best managers.
At SERS, when we started the private credit portfolio in 2017, we made a very conscious decision to start the portfolio with fewer and larger check sizes in an effort to keep the investment manager count down and focus on our best opportunities. It was a unique opportunity to start with a blank canvas and build a portfolio based on the lessons learned from those mature private equity portfolios. That's been working really well for us.
Trusted Insight: Looking at your bio, you were a semiconductor research technician, and you also have a background in mathematics. Did you ever plan on landing an LP role?
Ryan Morse: I certainly didn’t have a plan to be in investments; I'll tell you that. I’ve always had an affinity for technology. I grew up in the age where we didn't have it, or it was very nascent, and now it's ubiquitous. When I went to college, I thought I'd be a computer science major and that lasted exactly one semester. I then switched to math, because I figured that's universal, no matter what you do, you probably have to use some math. I also minored in physics, so I had a poor man's engineering degree. That led me to the semiconductor research role that was part of the SUNY Albany campus at the time.
At that point in my life, I had heard of the term “pension”, but I never thought about the behind the scenes, investment management aspect of a pension though. I eventually stumbled upon that. A good friend of mine, who I've known for 20 years now, started working at New York State Teachers out of undergrad. We would talk about his role and I would think, “That sounds pretty interesting."
As I worked as a semiconductor research technician, I started dabbling in the stock market. The more I learned about investments and the more I talked with my friend, eventually, I thought, "That sounds way better than what I'm doing." I made the decision to go back to school, get an MBA, and attempt to get into investments somehow, anyhow. I quit my job and went back to school full time. During my MBA program, I was lucky enough to get an internship at New York State Teachers. When I graduated later that year, I joined NYSTRS’ private equity team and the rest is history.
Trusted Insight: What topics do you feel should be addressed more when we speak with your pension director peers?
Ryan Morse: I think it'll be interesting to hear how other people are thinking about the remote working aspect of the job as that transition is happening in real-time. For me personally, it will involve having some type of hybrid model where we're not in the office five days a week, maybe a couple of days a week. I’d like to hear what my peers are thinking about as far as the future of the workplace.
A secondary effect of remote working is the impact on team building. How do you build a close team environment when you don't have that 40 hours per week of “forced interaction” with people at the office? Especially as it pertains to developing junior members of the team. That's an issue that people like myself and other more senior people will have to solve.
View our full catalog of interviews here.
The full list of 2021 Top Public Pension Investment Directors can be found here.