ANOTHER DEPARTURE: MassPRIM now looking for 2

As CIO search sputters because of $160,000 paycheck, fund's executive director announces he's leaving, too

BOSTON - The $30 billion Massachusetts Pension Reserves Investment Management Board hit a snag in its search for a chief investment officer and now has an even bigger void to fill following the resignation of Executive Director Scott Henderson.

Mr. Henderson, who had been executive director at the fund since 1997, announced last week that he will return to Bingham Dana, the Boston-based law firm for which he had worked before joining the pension fund in 1994.

"The timing of not having a chief investment officer and Scott's departure presents a challenge," said Deputy State Treasurer Michael Travaglini. But he and state Treasurer Shannon O'Brien, who chairs the PRIM Board, are confident they can fill both positions by the time Mr. Henderson leaves.

Messrs. Travaglini and Henderson were named to an executive director search committee, which Mr. Henderson will chair. "I'm very confident that we can implement a transition plan before I leave at the end of March," he said.

Four-month vacancy

The search for a new CIO has been under way since Carol Casey resigned Sept. 30, after a little more than a year on the job. Ms. Casey left for family reasons and since has joined Strong Capital Management, Milwaukee.

Andy Hunter, president and chief executive officer with PRIM's executive search firm, Whitehead Mann Pendleton James, Boston, said a major issue thus far has been salary. Many of the candidates have taken themselves out of the running because of the $160,000 salary and the high cost of living in Boston. Mr. Hunter said many of the candidates were either hesitant to leave a more lucrative private sector job or uproot family and accept a post at a public pension fund to move to a more expensive city. Mr. Hunter said that the top candidates with demonstrated CIO experience have been seeking around $300,000.

Mr. Henderson, who also sits on the CIO search committee, said the panel has interviewed good candidates. But, he added, it's difficult to attract candidates with a demonstrated track record running an investment management organization at PRIM's price. However, he said, PRIM has been successful in the past in attracting people who didn't have the demonstrated track record, but had the ability. "That may be where we end up," he said.

Of the 250 resumes received, 16 candidates made it through the search committee screenings and two were interviewed. With a number of applicants yet to be reviewed, no front-runners have emerged.

Mr. Travaglini said the board will continue to accept resumes and conduct interviews in hopes of placing someone by the end of March.

The board has not yet determined whether it will increase the salary range for the CIO position. "The reality is, this is a public defined benefit plan in Massachusetts. There are limits to the compensation structure," said Mr. Travaglini.

Recent increases

The board increased the CIO compensation range from $90,000 three years ago when Collette Chilton was hired as CIO to $145,000 when Carol Casey was hired two years ago

"The challenge is to continue to recruit and keep talented people," said Mr. Travaglini. "I refuse to believe that there's no one interested in being the chief investment officer at PRIM at the number that we're at right now. The question is, is that person the right fit."

Currently, the CIO salary is higher than the executive director salary, even though the CIO reports to the executive director. Mr. Travaglini said increasing the executive director salary has not been addressed yet. He said PRIM most likely will let the candidate drive the executive director's salary rather than "raising the bogey in a vacuum," he said.

Mr. Henderson said salary was not the primary driver behind his decision to leave Massachusetts PRIM. Rather, it was part of a long-term plan to return to the private sector and practicing law. When he joined PRIM as general counsel from Bingham Dana, the idea was to stay for three years. "I told my family in 1994 that it would be a three-year commitment, and I went well beyond that," he said. On two occasions since he was named executive director, he has doubled as the fund's CIO.

He said the last seven years at PRIM have been a great experience and that he enjoyed working with the board and staff.

Mr. Henderson said he is proud of the asset growth the pension fund has experienced since he joined. It went from a $4 billion fund to a $30 billion fund thanks to strong investment performance and the merger with the Massachusetts State Teachers and Employees Retirement Trust pension fund in 1996.

He also mentioned the growth of the private equity program, which went from about four relationships in 1994 to more than 20 today.

As a result of the recently approved long-term asset allocation plan, the private equity portion of the portfolio has increased to 10% from 8%.

Other changes

Other changes in the long-term asset allocation find domestic equities and fixed-income long-term allocations being reduced significantly. Domestic equities dropped four percentage points to 38%, while fixed income decreased three percentage points to 21%. Included in the fixed-income allocation is a new category, Treasury inflation-protected securities. The long-term TIPS allocation is at 5%. Also, the board created a separate asset class for high-yield debt, which has a long-term allocation of 3%.

International equity went up one point to 17%, while emerging-markets equity dropped one point to 3%.

Finally, real estate equity went up two percentage points to 8% with the addition of a new asset, timber, in which the fund can invest up to 2%.