The toughest job for some top pension officers now is not fighting the declining stock market, it is fighting the blues - theirs and their employees'.
In interviews with Pensions & Investments, several executives noted their jobs aren't as much fun - as they watch portfolios fall day after day - as they were during the late '90s, when the bulls just kept charging ahead.
Chris Ailman, chief investment officer of the $100 billion California State Teachers' Retirement System, Sacramento, said that even though he began working in finance in 1981, he had forgotten what it felt like to live through a bear market.
"Now I can sign an endorsement contract with Rolaids," he joked.
No one on his staff was around in 1973 for that bear market. "Even seasoned professionals have forgotten how it feels to hear consistent negative news, and to see losses every month. It's all about psychology; a cycle of optimism took us up; now a cycle of pessimism is taking us down."
Every pension fund is handling the situation differently. At CalSTRS, there is more communication at the staff level. "It's critical during a bear market," Mr. Ailman said. "Many people want to shut their door and forget what's happening, but they need to be out and talking to people."
He also has been acting as a cheerleader for his staff, trying to get them to keep a balance in their lives. "Sometimes people get so busy they want to take a day off at a time, and I've been urging them to take five consecutive days to decompress, not a day here or there. I think that in a bear market, you have to take care of yourself. A manager has to understand his people, and talk with them a lot, so they won't be depressed. They have to understand it's natural to feel down about the down markets, but I encourage them to find a balance, read a book, do charity work."
For Mr. Ailman personally, going to church has always helped him weather difficult times. He has been an active church-goer and continues to participate in Bible study classes, which gives him perspective. "Going up to the mountains helps a lot, too. It makes me realize there was a world around before and there still will be."
The mountains also have been important to Jim Penner, CIO at the $5 billion Montana Board of Investments, Helena, who finds solace from drinking in the beauty of the Rockies.
"Even though it's a difficult period, living in Montana and looking at those mountains keeps us from getting depressed, it's so beautiful. Nevertheless, the last year has been the toughest in my 15 years here," said Mr. Penner, who has been in the investment business for 30 years, but is still "astounded at what's been happening in the accounting world."
He added that the young analysts on his staff have become very disillusioned.
As a result of the stock market downturn, Mr. Penner is spending a lot more time on investments than he had previously. He also is spending more time talking with his research director and portfolio managers, and holding monthly meetings with them.
Many pension executives are devoting more time and effort to their funds' investments. But Robert M. Hunkeler, vice president and director of investments at the $6.2 billion pension fund of International Paper Co., Stamford, Conn., said IP officials are thinking outside the box.
"We're not going to invest our way out of this problem," he asserted.
William F. Quinn, president of AMR Investment Services, which manages the $6 billion pension plan of American Airlines Inc., Fort Worth, Texas, said the atmosphere around the office is grimmer these days.
"People seem to be around in the office more this summer. Not as many are taking vacations. With the nervousness and volatility of the market, they're thinking twice before going away, just in case something happens. They also seem to be eating lunch at their desks more."
Focusing on good
Since the downturn, American hasn't done anything dramatically different, but its investment officials have been considering upping their private equity and real estate allocations to get more yield. However, reflected Mr. Quinn, "it's not much fun to see the negative returns come in. But most of our managers focus on relative performance, which has been good, and they feel they're adding value, which has helped to keep them from getting depressed."
He added that there have been a lot more calls from angry participants who are worried about their pensions, and that the staff has been trying to calm them and persuade the callers not to sell low. "We're trying to reinforce the idea that there are market cycles," Mr. Quinn said.
Several staff members at the $84 billion State Board of Administration of Florida, Tallahassee, are seasoned professionals who have lived through earlier bear markets, said Coleman Stipanovich, interim executive director. "People aren't euphoric, but they're professional, and no one is in panic mode," he said.
Some pension executives are just plain angry about the downturn. Typical was David Bronner, chief executive officer at the $26 billion Retirement Systems of Alabama, Montgomery. "We need to restore credibility to Wall Street by hauling off some of these crooks to the slammer," he declared. The recent accounting frauds remind him of the 1987 stock market crash, when the junk-bond market created by Michael Milken imploded. "The difference is that those disasters were limited to certain sectors. We never had a fundamental crisis like this one, where we can't believe the accounting numbers."
Rick Dahl, chief investment officer and deputy executive director at the approximately $5 billion Missouri State Employees' Retirement System, Jefferson City, has had time to philosophize over the irony of the stock market's downdraft
"I had a whole lot of different stress levels" during the late 1990s, he said, when he had to continually justify the system's investment strategy - a value tilt for equities and an aversion to the high-octane, Internet stocks - to trustees and other officials. "That was a stressful time," he said.
Most executives said they weren't doing anything different, even though the market is different. Robert Woodard, chief investment officer at the $9 billion Kansas Public Employees' Retirement System, Topeka, said his staff managers routinely look at returns, and assess outcome and risks. But now they are meeting and talking more, and reviewing downside issues more acutely to affirm that they are where they want to be.
"We probably pay more attention to day-to-day movements than we used to. There's more interest in the daily market activity and the economic reports, and a heightened level of stress as a result of all this. At the same time, we have come to realize that we're not as smart as we thought we were."
Ken Shaffer, CIO at the $25 billion Los Angeles County Employees' Retirement Association, Pasadena, said he has been in the business for 27 years and has seen it all. "We're long-term investors, and I try to remind people of that so they don't get too excited. Also, I'm from the Midwest, and an even-keeled type, so I don't yell or panic, and I convey that to my staff. When I come in in the morning, I talk to everyone who's here, and no one seems to be having a problem functioning. Also, since we use outside managers, we don't have the daily stress of the market."
Nancy Everett, CIO of the $34 billion Virginia Retirement System, Richmond, is doing a lot more talking these days as well, fielding many more phone calls from reporters with local and national media about the corporate scandal du jour. "We're getting an extreme amount of attention because these are great stories. What's the impact on the fund of the stock that went down the most?" she said.
And even though losing a couple of billion dollars a year - the pension fund is down $8 billion from its peak little more than two years ago- is, by her own admission, not as much fun as adding a few billion dollars a year, Ms. Everett says she wouldn't trade in her job for anything else. "It's still the best job in the world."