Russell Read, the new CIO at the California Public Employees' Retirement System, has a wide variety of interests apart from investments — ranging from forests to music to old New England firehouses.
Russell Read loves trees. The incoming CIO of the $210 billion California Public Employees' Retirement System, Sacramento, owns a 500-acre forest preserve in Brooks, Maine, replicating a pre-colonial hardwood forest. Mr. Read also is an adviser to the Forest BioProducts Research Project at the University of Maine, Orono, and serves on the finance committee of the university's Fractionation Development Center, which is dedicated to attracting technologies that will convert wood to energy and other materials now made from oil.
Mr. Read, 42, also is an amateur musician: his primary instrument is the euphonium, which is a tenor tuba about half the size of the regular tuba.
Mr. Read, who succeeds Mark Anson as CalPERS' CIO on June 1, originally had hired Mr. Anson in 1995 at OppenheimerFunds. Mr. Read later served as global head of quantitative investment and research at Zurich Scudder Investments Inc. and later integrated that firm into Deutsche Asset Management, where he subsequently was named deputy CIO. He likely will move to the nearby university town of Davis with his wife, Andrea, and their three children. Ms. Read, who has a doctorate in modern languages, is seeking to establish an institute on sustainable development in Maine.
While they'll keep their ties to Maine, they will sell their converted 1863 single-bay firehouse in Jersey City, N.J. The Reads own the former home of Fire Engine Co. No. 3; Queen Latifah owns the ex-residence of Fire Engine Co. No. 1.
Tell me about your tree farm. It's 10,000 well-tended hardwood trees that roughly replicate the prevailing hardwood mix prior to 1770, prior to European settlement. This mix contains white and red swamp oaks, red cherry, Dutch elm disease-resistant American elm trees, and American chestnut trees, among others.
When did you first meet Mark Anson? Interestingly, Mark and I grew up a mile away from each other in suburban Chicago. Although we did not meet growing up, I brought Mark into OppenheimerFunds, where I did the development and management of the first commodity-based mutual fund. I searched for the brightest most capable Wall Street attorney I could find, who happened to be Mark Anson. At Oppenheimer, I led the firm's efforts in mutual-fund design, risk management, quantitative research, and commodities investing.
Where in the Chicago area did you grow up? I mostly grew up in Mt. Prospect, Ill., and went to high school in Houston, Texas. That time in Houston was actually fairly important because I really was exposed to and was acquainted with the energy industry. I did a lot of research, including a lot of research at NASA on photovoltaic energy.
The energy piece has come full circle, the interest in energy. Natural resources investing really was not center stage in the investment world for most of the '80s and '90s. However, both environmental investing and natural/renewable research is increasingly important to the capital markets.
How do you view commodities? (Commodities serve as) a return enhancer and a hedge against inflation — really both. When looking at commodities as an investment throughout the '80s and '90s, (the asset class) made sense as a diversifier and as a hedge against inflation, and short-term disruptions in financial markets.
Today, as with the period '64-'80, many outstanding opportunities in the capital markets themselves will be related to the distribution and production of energy and raw materials. And that represents a shift.
The strained supply of petroleum in face of increasing demand does put pressure on all alternative energy sources. It does require a serious evaluation of sustainable resources. That's not only true of forest products and coal, it also includes solar. What is the supply of solar-grade silicon? Right now, it's a limiting factor in how many solar cells you can actually produce. Being able to foster production of solar-grade silicon can be an important part of the solution.
How will CalPERS tackle commodities? What we'll be doing is discussing what these options are. This is a critical sector for diversification purposes and increasingly for capital markets opportunities. It also has frankly an important social impact in that being able to invest efficiently in scale in this area should be an important piece of U.S. energy strategy: how we are going to meet a clearly constrained petroleum supply situation and its impact on consumers and investors.
Will you increase CalPERS' focus on asset-liability management? The investments will have to reflect the expected pension liabilities in terms of providing the best risk-return and liquidity profile. I started off my career as an actuary. I worked as a casualty actuary at CNA Insurance, where I worked on a wide range of actuarial problems including medical malpractice, directors' errors and omission insurance, and health care.
(Later), I helped to manage a portion of Prudential Insurance's guaranteed investment contract (portfolio). That was important to best meet the liability obligations. That asset-liability management problem is directly analogous to what we face at CalPERS.
Do you expect to continue expansion of internal investment management at CalPERS? Any of the strategic investment decisions have to come through the investment board. With that caveat, I see the potential expansion of certain critical investment areas, in areas that are not readily provided for in the investment industry. I don't want to elaborate.
I'm loaded with ideas. Some of them could and should see the light of day…
How can CalPERS use its size to its advantage? CalPERS does have a unique role in its ability to effect change in a wide range of areas from corporate governance to environmental investing to natural/
renewable resource investing.
This is not only the right thing to do, but in CalPERS' case, it can be done highly profitably. For instance, its work in corporate governance really has helped to make better companies that serve shareholder/investor interests, and even improve the long-term profitably and viability of those companies. It really is significant here because if this were a much smaller pension plan, it simply could not have the same impact that it has.
It is the most important example of how the size of the plan can actually be used for providing stronger investment returns, and where scale can serve as an advantage rather than a disadvantage.
When CalPERS has been transformational in its investing, such as with corporate governance, has been when it has been particularly successful from a return vantage point …. You're actually transforming the companies that you're investing in or the capital markets that you're investing in, so you're not simply a passive investor.
You led an inner city program in New York when you were with Oppenheimer. I led a program at Steward Park High School, a mentoring program where we took in sophomores, 15-year-old children at risk. It was a Lower East Side school, (and) for a three-year period we provided guidance and a working program. It was good for them, and for the people at work. We created an essential connection with the investors we had. All too often in the investment world you can get caught up in the ethereal nature of the investments. Having a program at the workplace really was important for grounding of the work force.
The payoff is big. Typically, by the end of it, you have these super-motivated kids who are high-achieving because they know the other side of life.