For some investment professionals, the atmosphere of Illinois' state capital, Springfield, is a just a little too small town. But joining the investment staff of the Teachers' Retirement System of the State of Illinois was a homecoming for R. Stanley “Stan” Rupnik, who grew up in Springfield.
Like Mr. Rupnik, many TRS investment staffers are attracted to the advantages of working at a big pension fund — $32.1 billion — in a small town because of the quality of life. But Mr. Rupnik's seven-year tenure at TRS has not been a serene period. He joined as director of investments in April 2003 and in November 2004 was named chief investment officer. A pay-to-play scandal that surfaced in 2005 resulted in a number of indictments and convictions of a former TRS trustee, the fund's outside counsel and a number of prominent Illinois politicians. Another casualty was the forced resignation of Executive Director Jon Bauman in early 2009, which precipitated Mr. Rupnik's being named to fill the position on an interim basis.
Although Mr. Rupnik expected to join his family's hotel and restaurant business after college, his first job was as a senior portfolio analyst at Northern Trust Co., working with large corporate pension fund clients. He went on to become a fixed-income analyst and senior fund accountant at Wayne Hummer Investments LLC and then worked as an equity analyst at Barrington Research Associates Inc. Mr. Rupnik began to hone his pension fund management skills as senior financial analyst with a specialty in domestic equities at GE Asset Management, the money management unit that manages GE's pension fund as well as assets for external clients.
Colleagues say Mr. Rupnik has a very good understanding of process, which he uses to lightly rein in his investment staff, all passionate investors who love to talk about their own asset classes. “Stan is all about process,” said one co-worker, adding that Mr. Rupnik has a very well-developed ability to know when to step back and let one of his staffers or a board trustee lead a conversation or when to step in to get discourse back on track. “It's really the opposite of a micromanager personality. He reads and manages people extremely well,” said the TRS staffer.
How did you approach the job of CIO after the pay-to-play scandals were uncovered in 2005? It was something of a reformer's role. I came in 2003 and for the bulk of 2003 and 2004, our big initiative was to upgrade the depth and capabilities of our internal staff (so) we were less reliant on outside parties. We wanted to take control of our own research initiatives. The events that came to light in 2005 were unfortunate because we were just beginning to make a name for ourselves in the industry. We were on the early side of developing some good partnerships with investment firms across the board. The scandal hurt our reputation a little bit.
Did you have trouble with money managers? What hurt us was that you always want to be an “investor of choice.” I think in the competitive investment environment we were dealing with in 2005 and 2006, there was some baggage to the news that was out regarding our fund. We were trying to establish ourselves as experts and a deep, seasoned investment staff and we had those events hanging over our heads.
Is the scandal completely over for TRS? I hope so. As far as I know, there is no more news to come out about this. Obviously, there are pending trials, but I do not expect there to be more to come for TRS.
Are there any deals dating from the scandal period still plaguing your portfolio? Not really. There are some private equity funds from that time that have 10-year horizons, but they are near the end of their life cycles.
What progress have you made in upgrading the investment team? I think we have everything we need, although we should add more depth. We have two open positions on the analyst side. What we've tried to do is to build a staff that has a lot of industry experience and look for people who have a passion for investments. As for consultants, we've looked for firms and people that can work well with us. We're a much more active investment staff than we used to be and we're looking for consultants who can work side-by-side with us, in fact, keep up with us. We really work as a team with our outside consultants and add value to each other.
Do TRS and consultant staff always agree on investments? Not much makes it to the board of trustees in the form of an investment recommendation that we're not all in agreement on, but behind the scenes, we debate a lot of issues. Both sides usually have valid arguments, but if something doesn't smell right to one of us, there's probably some baggage associated with the manager or the strategy, some extra risk that we haven't identified.
How is your staff looking at risk these days? That's a really good question, and I think risk is something that a lot of public funds don't look at in enough depth. To be honest, we probably don't either. But as we build our capabilities, I think our No. 1 priority is to better understand the risk at a portfolio level and at the total fund level. We recently changed custodians (to State Street Bank & Trust Co.), and hopefully, we are getting the tools in place with them to deal with risk management. That's what hurts a lot of public plans; getting the tools and resources needed to run a good risk management program is onerous. I think we're getting to that point of having what we need. We have a plan in place to increase the tools needed.
Will you build or buy a risk program? What's the timeline? I think to get the most immediate impact, you have to look at what's out there and bring a program in. That will be a quicker implementation. But how we customize it from there is the big question. We had hoped to have the risk program in place during this fiscal year (ending June 30), but the custodian change pushed that implementation back a little. But we're definitely planning to get a program going in the near term.
What investment opportunities do you see in the next 12 months or so? You see us definitely overweighting a lot of distressed opportunities now. More important to your question, because we're a public plan that can't move as quickly as some other investors, we have to take a somewhat longer-term view of investment opportunities.
At the last board meeting (in February), we took a look at the resources we have in place, the investment team and a lot of the partnerships we've made in the investment management community. And our evaluation was that TRS is at a point in its evolution where co-investment makes sense. We're taking a close look at co-investment. Large plans with deep relationships in the private equity community have unique opportunities for co-investment. How we can take advantage of that and bring it into our program is probably the biggest new investment opportunity we're working on.
What is the most rewarding aspect of your job? As head of a pension fund serving more than 350,000 active and retired teachers, I'm constantly meeting TRS members from all over the state. It really happens all the time. It's really nice to be sitting at my daughter's swim meet or at a soccer game and find that I'm next to a TRS member. It's great to learn more about them and their lives and to hear that they think we're doing a good job managing their pension fund.