Ashbel C. Williams Jr. is possibly the only former hedge fund manager now leading a major pension fund. He was hired as executive director and chief investment officer of the Florida State Board of Administration in 2008 directly from New York-based Fir Tree Partners, where he was responsible for investor relations and business development. Since then, he has led the FSBA to make its first hedge fund investments, just as years ago when, working as a Florida legislative aide, he was instrumental in the FSBA making its first equity allocation.
One of his biggest challenges now is dealing with an entirely new board of trustees: Gov. Rick Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi all took office this month. Mr. Williams declined to talk about what changes the new board might bring to investment policy or staffing, including his own position, until he has a chance to meet with the trustees. He has the experience to handle the situation. Mr. Williams, in fact, is in his second run as FSBA executive director, having served from 1991 to 1996, when he left to become president of U.S. asset management business of Schroder Capital Management.
Mr. Williams' first career impulse was investment banking. But from college he was recruited by J. Hyatt Brown, then speaker of the Florida House of Representative. One of his first projects for Mr. Brown was to write legislation allowing the FSBA to invest in equities. Subsequently, he worked for then-Gov. Bob Graham and for Gerald Lewis, then-state comptroller. “I was able to fulfill (ambitions in investment banking) ... by my involvement with municipal finance and pension investment at the state level,” Mr. Williams said.
Mr. Williams has a personal side of fun, religious devotion and quirkiness. He owns a motorcycle that he rides to his beach house. He loves boating. At his church, he is one of the Episcopal lay Eucharistic ministers, administering communion and wine, saying, “We are well-dressed bartenders.” And he prefers to wear bow ties, which, he noted, maintain their neatness compared to neckties and “take up a fourth of the space” of neckties in packing.
Why did you want to come back to the FSBA? Couple of reasons. First of all, Florida is home. Secondly, I think the experience I gained at the board the first time together with 12 years on Wall Street made me more qualified ... this time than I was the first time.
What did you wish you knew your first term? More age, more experience. If you look at the six years I was at the board the first time, plus 12 years on the private sector, that's a better part of two decades of experience. Over the course of your adult life, 20 years' experience is a lot no matter what you are doing. And your judgment is better, your perspective is better.
Is there anything specific to which you can point? Having been on the private side, you have a completely difference appreciation of what goes into the perspective of an asset manager. If you've actually been in a senior position in an asset management organization and understand what goes into the selection of investment team members, what goes into portfolio construction, how people think about risk ... if you've seen it from both sides, then you have to have a better appreciation for what each side is dealing with and what the holistic outcome will be.
Would FSBA consider risk parity investment? No ... We are a very well-funded pension system. I don't see any benefit to levering up, and I do see risk associated with it. It's probably uncompensated risk.
Why are you moving more assets internally and making more assets passive? We really want to focus our risk taking on areas that we are comfortable that we are going to be compensated for risk. The last thing we want to do is to take the risk and spend fee revenue in areas of the market that are very efficient. I think the U.S. large-cap equity space is the bull's-eye of that issue. We've not seen any great evidence that active management really pays off given the risk you are taking.
So where are you placing money actively? What we then want to do is look at those parts of the market we believe to be less efficient — which would be smaller caps in the equity area, alternative investments, private equity, hedge funds, real estate — where we think there is some higher probability of adding real alpha. We want to take our risk there.
You are just getting your feet wet in hedge funds. Are you later in the game? We were certainly not in the vanguard. When you say "late' that implies we missed something; I don't know that we have. By coming in now, we have some advantages others lack. No. 1, the industry is more mature. No. 2, the value of an investment partner like us — which is to say large, liquid and long-term oriented — has not escaped anyone. One of the lessons the hedge fund industry learned at the end of 2008 is your investor base matters dramatically to the durability of your business and ultimately your ability to retain key talent.
What's the biggest risk to the FSBA? Human capital risk and succession risk. The board has been fortunate to have a very gifted investment staff and a very gifted staff generally for a number of years with a very low turnover. That's good because it gives you a very stable culture. The flip side is it's easy for compensation to stagnate because there is not a need to get back into the market to replace talent at current valuations. So it's easy to get way out of step with the marketplace, which puts you at risk of losing talent.
What have you learned from the financial market crisis? The fundamentals apply. Leverage matters. Liquidity matters. The character of the people you choose as investment partners matters. Alignment of economic interest matters.
Do you think the Dodd-Frank Act, enacted last July, will reduce market risk? I doubt it. I don't think you can legislate risk out of markets. Markets are global and laws are region specific.
What should be done? Every investor has a responsibility to understand their risk exposures. You can never delegate your responsibility for managing risk to a legislative body or a regulatory body. Look at the biggest financial failures we've seen in (recent) world history: Enron; WorldCom; Madoff. Every one of those was a regulated entity. And guess what? If you have the wrong people making decisions with the wrong moral compass, the wrong values, a willingness to do things inappropriately and conceal them, really bad things can happen to people who rely on those rules.
What are some indefensible practices in pension fund management? Pension obligation bonds. The whole idea that you could somehow borrow a boatload of money in the capital markets and invest the proceeds and that's going to make you more healthy. That's nothing more than a levered bet and not a very smart one.
You are an Episcopal lay minister. How does that inform your work? There are a lot of things in life that require a degree of faith. When you think about what we do in the investment world, especially if you are doing it in scale with other people's money, you better have faith and you better have a compass for how you treat people and how you deal with moral issues.
You show an interest in architecture. I'm a student of all kinds of arts. I love the way simple things can be elegantly executed in a way they create pleasure while at the same time serving a purpose, and architecture is a great example of that. You can have every building look like a post-World War II cinderblock ... and it would serve its purpose, but what a miserable world.
