Sam Masoudi, CFA, CAIA, is the chief investment officer at Wyoming Retirement System, which consists of eight defined benefit pension funds with a total of $7.3 billion in assets under management. Previously, he was the managing director at the Tulane University endowment; founder and portfolio manager at Silver Peak Capital Management, a hedge fund; director at Veronis, Suhler & Associates, a private equity firm; and assistant vice president at Kidder Peabody / PaineWebber, a real estate investment banking group. Masoudi graduated from Babson College with a B.S. in Finance and Investments.
Masoudi was recently named to Trusted Insight’s ranked list of the Top 30 Pension Fund Chief Investment Officers. He graciously spoke with Trusted Insight on January 28, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: What brought you to the realm of pension fund investing, and how have your previous experiences shaped your approach to running the Wyonming Retirement System?
Sam Masoudi: Until Tulane, I was very fortunate to have a wide variety of direct alternatives investing experience between real estate, private equity and hedge funds. When I was considering the move to Tulane, it seemed like a good way to capitalize on my prior experience and be able to focus on true long-term investing and not have to worry about marketing and shorter-term returns. I was very happy with the move and my experience.
When the Wyoming opportunity came up it was very interesting to me because the pension is structured more like an endowment or foundation than a typical pension. We don't have as much bureaucracy as most pensions. We have investment authority at the staff level. That enables us to move very quickly. We also have the ability to execute tactical trades at the staff level. I grew up in Denver, so I was very happy to be able to move my family back to this part of the country.
Trusted Insight: Unlike most other types of institutional investing, your performance at the pension fund has a direct impact on retired Americans. For you, is that a burden to bear or a righteous cause that wakes you up in the morning?
Sam Masoudi: I'd say it's certainly a tremendous responsibility that I think can add an additional layer of pressure. I think that's offset by the satisfaction of knowing that our team is helping a lot of people to pay their bills. This fund will be used for living expenses for approximately 80,000 people in the state. I think that's certainly very satisfying.
Trusted Insight: Tell me about your investment team. What's the structure, are you more generalists or specialists, and how might your team differ from peer institutions?
Sam Masoudi: When I came in, there were three other people who were all very new. There were two senior people and a junior person who were operating as generalists. I changed the team to a specialist structure. I think that really enables our people to get to know their asset classes much better. It also makes us more efficient. Since then we've hired two new analysts who started last summer, and now there are six of us. In about a year, we are going to hire another senior person and another junior person.
Trusted Insight: You said that you have investment authority on the staff side. How does that play into the team dynamic?
Sam Masoudi: We write up extensive due diligence memos for every new investment, and we'll usually send those to the board after the investment is made. The main benefit is that we don't have to wait for quarterly meetings to get investments approved, and we don't have to spend quite as much time debating the merits of the investments with the board as we might have to otherwise. I think it also makes it less of a political process. We can make investments based purely on the merits.
Trusted Insight: As a pension you must strategically deploy your capital for long-term growth, but also be wary of your required annual returns. Can you tell me about how you structured the portfolio to maintain your long-term perspective, but also not be caught up by near-term market volatility?
Sam Masoudi: We really try to keep a long-term focus. I think that generally, because we are a long-term pool of capital, it always makes sense to have the majority of our assets invested in equities, whether they're public or private. We tend to measure ourselves based on performance relative to benchmark and peer performance. We try not to worry too much about achieving our 7.75% actuarial target every year because ultimately the markets are going to decide whether we get there or not.
We don't have control over the markets. We invest prudently, and if equity markets perform well, as we believe they will over time, we'll have a greater chance of hitting our target.
Trusted Insight: What did the portfolio look like when you took over and how has it changed since?
Sam Masoudi: One of the major changes is we didn't have private equity. We had some private real assets, but no private equity. We've launched the private equity effort. Last year, we made about $350 million in private equity and private real assets commitments. Right now we have about 11 percent in private markets. Our target will be at 15-to-high-teens percent in four-to-five years. We also reduced the fixed-income portfolio from 30 percent to the high teens. As part of that, we've made the fixed-income portfolio more conservative as well. While it's smaller, it should be better ballast. One of the changes that we made is we eliminated high yield in 2014. That really helped us last year.
Trusted Insight: What primary characteristics do you look for in a private market manager? How does that differ for public market investments?
Sam Masoudi: In private markets, we're focused on characteristics that are unique to private markets, such as sourcing capabilities and with the ability to improve portfolio companies. Those are the two primary differences. I think private markets are attractive because they've historically produced premiums to public markets. There's also a smoothing effect of returns based on the lagged reporting. Valuations tend to be a little stickier in private markets.
Trusted Insight: What trends have you identified in your time at public pensions?
Sam Masoudi: During my short time in the pension world, I've noticed that pensions are definitely moving toward the endowment model. If you look back to a period like the 80s, a pension could invest all this capital in 10-year Treasury bonds and outperform its expected return. Actuarial returns back then weren't much higher then than they are now, but expected market returns are significantly lower. This changing dynamic has forced the pension industry to be more competitive, efficient and effective.
Pensions seem to be hiring more people with buy-side experience. I think that the quality of pension staff is probably increasing. Staff size, quality and compensation have all been increasing over the last few years. I think that trend will continue to the benefit of the millions of people that depend on pension income. Pensions are also trying to become more efficient by reducing RFPs, either getting rid of RFPs completely or conducting invitation-only RFPs.
Trusted Insight: In that realm, how do you attempt to attract and retain talent?
Sam Masoudi: It's tricky because of our location. Wyoming doesn't have a financial industry, so it's a little bit harder to attract people here. The legislature has been very supportive. They've allowed us to hire new people and given us some more flexibility with compensation.
We hired two of our analysts out of University of Wyoming. By hiring locally, we get people who already want to live in Wyoming. They're going to be a little stickier, and we won’t have to worry about them not adapting to living in the state and quitting. The legislature really loves that we're hiring people locally as well.
Trusted Insight: What's the biggest challenge that you face right now that's unique to pension fund investing?
Sam Masoudi: While we've made progress on the resource side, that's always going to be the challenge because we don't have budget autonomy. The legislature needs to approve our budgets. They do so on a two-year basis, so to the extent we need increased resources it either takes a long time to get funding approved or we aren’t able to do so. This lack of budget autonomy is going to continue to be the biggest challenge.
Trusted Insight: One of the goals that Trusted Insight has with this project is to help foster the next generation of CIOs. If there was one number one lesson that you've learned in your career, what might that be?
Sam Masoudi: Don't worry about pleasing people in the short term. If you worry too much about keeping people happy in the short term, you end up becoming a short-term investor; you will end up following the herd and producing poor returns. Focus on long-term returns. It will increase the chances of producing superior returns and keeping your board happy.
To learn more about the the Top 30 Pension Fund Chief Investment Officers, click here.
Masoudi was recently named to Trusted Insight’s ranked list of the Top 30 Pension Fund Chief Investment Officers. He graciously spoke with Trusted Insight on January 28, 2016. The following interview has been edited and condensed for clarity.
Trusted Insight: What brought you to the realm of pension fund investing, and how have your previous experiences shaped your approach to running the Wyonming Retirement System?
Sam Masoudi: Until Tulane, I was very fortunate to have a wide variety of direct alternatives investing experience between real estate, private equity and hedge funds. When I was considering the move to Tulane, it seemed like a good way to capitalize on my prior experience and be able to focus on true long-term investing and not have to worry about marketing and shorter-term returns. I was very happy with the move and my experience.
When the Wyoming opportunity came up it was very interesting to me because the pension is structured more like an endowment or foundation than a typical pension. We don't have as much bureaucracy as most pensions. We have investment authority at the staff level. That enables us to move very quickly. We also have the ability to execute tactical trades at the staff level. I grew up in Denver, so I was very happy to be able to move my family back to this part of the country.
Trusted Insight: Unlike most other types of institutional investing, your performance at the pension fund has a direct impact on retired Americans. For you, is that a burden to bear or a righteous cause that wakes you up in the morning?
Sam Masoudi: I'd say it's certainly a tremendous responsibility that I think can add an additional layer of pressure. I think that's offset by the satisfaction of knowing that our team is helping a lot of people to pay their bills. This fund will be used for living expenses for approximately 80,000 people in the state. I think that's certainly very satisfying.
Trusted Insight: Tell me about your investment team. What's the structure, are you more generalists or specialists, and how might your team differ from peer institutions?
Sam Masoudi: When I came in, there were three other people who were all very new. There were two senior people and a junior person who were operating as generalists. I changed the team to a specialist structure. I think that really enables our people to get to know their asset classes much better. It also makes us more efficient. Since then we've hired two new analysts who started last summer, and now there are six of us. In about a year, we are going to hire another senior person and another junior person.
Trusted Insight: You said that you have investment authority on the staff side. How does that play into the team dynamic?
Sam Masoudi: We write up extensive due diligence memos for every new investment, and we'll usually send those to the board after the investment is made. The main benefit is that we don't have to wait for quarterly meetings to get investments approved, and we don't have to spend quite as much time debating the merits of the investments with the board as we might have to otherwise. I think it also makes it less of a political process. We can make investments based purely on the merits.
Trusted Insight: As a pension you must strategically deploy your capital for long-term growth, but also be wary of your required annual returns. Can you tell me about how you structured the portfolio to maintain your long-term perspective, but also not be caught up by near-term market volatility?
Sam Masoudi: We really try to keep a long-term focus. I think that generally, because we are a long-term pool of capital, it always makes sense to have the majority of our assets invested in equities, whether they're public or private. We tend to measure ourselves based on performance relative to benchmark and peer performance. We try not to worry too much about achieving our 7.75% actuarial target every year because ultimately the markets are going to decide whether we get there or not.
We don't have control over the markets. We invest prudently, and if equity markets perform well, as we believe they will over time, we'll have a greater chance of hitting our target.
Trusted Insight: What did the portfolio look like when you took over and how has it changed since?
Sam Masoudi: One of the major changes is we didn't have private equity. We had some private real assets, but no private equity. We've launched the private equity effort. Last year, we made about $350 million in private equity and private real assets commitments. Right now we have about 11 percent in private markets. Our target will be at 15-to-high-teens percent in four-to-five years. We also reduced the fixed-income portfolio from 30 percent to the high teens. As part of that, we've made the fixed-income portfolio more conservative as well. While it's smaller, it should be better ballast. One of the changes that we made is we eliminated high yield in 2014. That really helped us last year.
Trusted Insight: What primary characteristics do you look for in a private market manager? How does that differ for public market investments?
Sam Masoudi: In private markets, we're focused on characteristics that are unique to private markets, such as sourcing capabilities and with the ability to improve portfolio companies. Those are the two primary differences. I think private markets are attractive because they've historically produced premiums to public markets. There's also a smoothing effect of returns based on the lagged reporting. Valuations tend to be a little stickier in private markets.
Trusted Insight: What trends have you identified in your time at public pensions?
Sam Masoudi: During my short time in the pension world, I've noticed that pensions are definitely moving toward the endowment model. If you look back to a period like the 80s, a pension could invest all this capital in 10-year Treasury bonds and outperform its expected return. Actuarial returns back then weren't much higher then than they are now, but expected market returns are significantly lower. This changing dynamic has forced the pension industry to be more competitive, efficient and effective.
Pensions seem to be hiring more people with buy-side experience. I think that the quality of pension staff is probably increasing. Staff size, quality and compensation have all been increasing over the last few years. I think that trend will continue to the benefit of the millions of people that depend on pension income. Pensions are also trying to become more efficient by reducing RFPs, either getting rid of RFPs completely or conducting invitation-only RFPs.
Trusted Insight: In that realm, how do you attempt to attract and retain talent?
Sam Masoudi: It's tricky because of our location. Wyoming doesn't have a financial industry, so it's a little bit harder to attract people here. The legislature has been very supportive. They've allowed us to hire new people and given us some more flexibility with compensation.
We hired two of our analysts out of University of Wyoming. By hiring locally, we get people who already want to live in Wyoming. They're going to be a little stickier, and we won’t have to worry about them not adapting to living in the state and quitting. The legislature really loves that we're hiring people locally as well.
Trusted Insight: What's the biggest challenge that you face right now that's unique to pension fund investing?
Sam Masoudi: While we've made progress on the resource side, that's always going to be the challenge because we don't have budget autonomy. The legislature needs to approve our budgets. They do so on a two-year basis, so to the extent we need increased resources it either takes a long time to get funding approved or we aren’t able to do so. This lack of budget autonomy is going to continue to be the biggest challenge.
Trusted Insight: One of the goals that Trusted Insight has with this project is to help foster the next generation of CIOs. If there was one number one lesson that you've learned in your career, what might that be?
Sam Masoudi: Don't worry about pleasing people in the short term. If you worry too much about keeping people happy in the short term, you end up becoming a short-term investor; you will end up following the herd and producing poor returns. Focus on long-term returns. It will increase the chances of producing superior returns and keeping your board happy.
To learn more about the the Top 30 Pension Fund Chief Investment Officers, click here.