Pension Investment Staff Need Better Pay, Say CIOs

Investment staffers at public pension funds are under-compensated relative to the market — and that’s dangerous to the long-term prospects of the funds, according to several top CIOs who spoke at the Milken Institute Global Conference this week.

If public pension funds don’t begin giving their staff higher wages, they won’t have the talent to meet return targets, according to the panelists.

U.S. pension funds could look to their Canadian peers for a roadmap.

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“If it doesn’t get fixed, no, you won’t meet the target rates of return. You won’t have the talent,” said Vicki Fuller, CIO of the $185 billion New York State Common Retirement Fund.

On a $1 billion private equity mandate, for example, New York’s fund might spend $30 million to $50 million in fees per year. The employee responsible for that mandate? “$150,000,” Fuller pointed out. “It doesn’t make sense.”

The net investment of increasing staff wages to effectively manage assets in-house would be paid off many times over, according to panelist Chris Ailman, CIO of California’s $187 billion teachers’ retirement system. He knows from experience.

“In the public markets, it costs us about one-tenth the cost to run money in-house as it does to hire an external manager,” Ailman said. “If we could run money in private markets and do direct deals, it would probably be 25 times cheaper.”

Ailman and Fuller lauded Canadian pension funds for solving the issue through arm’s-length governance structures and market-competitive wages.

Ron Mock, CEO of Ontario Teachers’ Pension Plan, earned C$4.3 million (US$3.4 million) in 2015, for example. His predecessor took home double that in 2013. At $133 billion, the fund has among the best long-term track records of any pension investor worldwide, net of expenses.

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