Boeing putting finishing touches on alts team

CHICAGO — The Boeing Co. is at the tail end of a hiring spree, albeit a fairly small, but important one.

The Chicago-based manufacturer plans to double to six the number of investment specialists on staff by the end of the year to implement an ambitious increase in alternative investments within its $50 billion defined benefit plan.

Boeing executives announced in the spring that they are hiking the fund's alternative allocation by 11 percentage points to 27% of assets (P&I Daily, April 4) or a total of $13.5 billion based on current assets. Boeing now has about $8.5 billion invested in hedge funds, real estate, energy, timber, private equity, global tactical asset allocation and other alternative asset classes, said Todd H. Blecher, Boeing communications director.

The portfolio shift increases the hedge fund allocation to 6% from 3%; private equity to 6% from 4%; a new 10% allocation to real estate and timberland, energy and other natural resources, from 4% real estate; and global strategies (tactical asset allocation) will remain at 5%, Mr. Blecher said.

Getting that additional $5 billion invested in complicated, capacity-constrained, comparatively illiquid asset classes will take a lot more staff time and that's what prompted the recent spate of staff searches, said sources familiar with Boeing's plans.

Mr. Blecher confirmed that Boeing is increasing staff for its alternative investments group, led by Elizabeth Tulach, through the creation of three new positions: directors of hedge funds, private equity, and real estate and real assets.

Shane Willoughby joined in January as director of real estate and real assets. Mr. Willoughby was investment officer-real estate at the $38.7 billion Teachers' Retirement System of the State of Illinois, Springfield. Greg Uebele joined in June to head private equity; he was senior investment officer at the $82.9 billion Ohio Public Employees Retirement System, Columbus.

The hedge fund director position still is open though not for long, said executive recruiters and other industry sources with knowledge of Boeing's plans.

In an e-mail response to questions, Mr. Blecher said: “We're still evaluating candidates for the hedge fund director position. I'm not going to comment about whether a hire is imminent.”

Other sources said the corporate fund is down to reviewing two finalists and that a hire likely will be made soon.

The process to fill the three alternative director positions, which has been handled by the New York office of Korn Ferry International, has taken six months, sources said, a reflection of very tight competition for talented alternative investment staff.

“There has been huge, huge demand for investment staff with experience in hedge funds, private equity, real estate and other flavors of alternative asset classes not only among pension plans, but also from endowments, foundations, fund-of-funds managers and from the growing number of "CIO-in-a-box' firms,” said David Barrett, managing partner of the eponymous executive recruitment firm David Barrett Partners LLC, New York. “Savvy alternative investors are getting very hard to come by.”

Another recruiter said he understood that Boeing was trolling endowment and foundation investment staffs for its new senior hedge fund officer, while a hedge fund industry executive said the last few finalists have come from major hedge fund-of-funds managers. Both sources requested anonymity.

Regardless of who finally gets the job, speculation is rampant in the Chicago investment community about Boeing's intentions once its new alternatives team is in place.

Sources familiar with the situation at Boeing who asked for anonymity said executives are considering a much larger direct hedge fund portfolio, joining the elite ranks of large, sophisticated investors like the $230.2 billion California Public Employees' Retirement System, Sacramento, and the $164 billion New York Common Retirement Fund, Albany.

But Boeing executives are holding their cards close.

Boeing's senior investment staff, including Mark A. Schmid, vice president-trust investment and chief investment officer, and Ms. Tulach, director of alternatives, were not available for interviews.

“Once the entire staff is in place we'll consider whether a direct hedge fund investment program is appropriate and useful as a complement to our existing fund-of-funds approach. It's worth noting that we already invest directly, to some extent, in private equity, real estate, and real assets,” Mr. Blecher wrote in his e-mail.

Led by Mr. Schmid, Boeing's investments in alternatives increased a whopping 193% to $8.5 billion as of June 30 from $2.9 billion as of Sept. 30, 2004.

Mr. Blecher declined to provide recent asset class breakdowns, but an analysis of data provided by Boeing to P&I traces the evolution of a maturing alternatives investor poised to invest significantly more.

Real estate was Boeing's slowest growth category among alternatives during the past three years: Assets increased 50% to $1.6 billion as of Sept. 30, 2007, from $1.1 billion as of Sept. 30, 2004. In order to bring real estate up to the new 10% target, which includes timber, energy and other natural resource investments, Mr. Willoughby will oversee the investment of an additional $3.4 billion.

Boeing's private equity investments increased 104% to $2 billion as of Sept. 30, up from just $992 million as of Sept. 30, 2004. Mr. Uebele's marching orders include investing an additional $1 billion in private equity to meet the plan's new 5% target.

As for hedge funds, Boeing's total investment in hedge funds increased 101% in the three-year period to $1.7 billion as of Sept. 30. As of Sept. 30, 2004, Boeing's $823 million of hedge fund exposure was entirely invested in funds of funds; by the end of September 2006, Boeing reported $982 million of hedge fund-of-funds assets and $517 million of direct hedge fund investments. Last year, $1.1 billion was invested in funds of funds and direct hedge fund investments totaled $602 million. Boeing's hedge fund director will need to put an additional $1.3 billion into hedge fund strategies in order to meet the new 6% target. Sources noted that some assets might be moved to direct hedge fund strategies from funds of funds, a point Mr. Blecher declined to confirm in an interview in April.

Mr. Blecher said then that details about manager searches to implement the higher alternatives target allocations won't be disclosed, although he did say that the fund is evaluating investment management firms and that “It is an ongoing activity in terms of evaluation and bringing on new managers.”

Contact Christine Williamson at [email protected]