Jeb Burns was aiming for a career in public policy, but ended up managing the $6.8 billion Municipal Employees' Retirement System of Michigan, Lansing.
After a brief stint as a retail stockbroker, Mr. Burns earned a master's degree in public administration with a concentration in public policy and spent 7½ years in Michigan state government. His jobs included a public policy analyst in the Michigan Department of Natural Resources; a legislative and communications specialist for the Michigan Department of Management and Budget; and a senior budget analyst in the Michigan State Budget Office.
Mr. Burns said his experience in the fractious environment of state government set him up well to be a chief investment officer, the job for which the Municipal Employees' Retirement System hired him in 2001.
Mr. Burns — along with former Executive Director Anne Wagner, who retired July 1 and had been CIO before Mr. Burns — built MERS into an organization that now functions as a full-service money management shop. Offerings include investments, benefit payments, record keeping, education and cash management provided to about 800 Michigan municipalities, Native American tribes and home-rule communities with 100,000 active and retired participants. MERS offers defined benefit, defined contribution, hybrid and 457 plan vehicles as well as valuation services.
In dollar terms, MERS can't be counted among the jumbo U.S. public pension systems, but it would be hard to tell that from the spectrum of innovative investments Mr. Burns' team has tapped.
For example, the pension plan recently invested $180 million in Australian pastureland, which Mr. Burns termed “a protein play” for Asia's hungry, growing middle class. Officials also created an in-state real estate fund. developed an in-house active U.S. microcap equity investment strategy; and entered into strategic investment partnerships with U.S. megaprivate equity manager The Carlyle Group and Alpinvest Partners BV, one of Europe's largest private equity shops.
How did you get into money management? While I was working in state government, I got involved as a volunteer on a local pension board and then, just really through my professional network, I became aware of MERS of Michigan. It was in its early stages of growth — although it was founded in 1946 by six municipal plans that pooled their resources to create better pension funds — and they were looking for somebody to run their investments. I had enough of an investment background, but also a broad skill set that was a good match for a CIO.
So you hadn't managed any money before MERS hired you? No, I had not.
Did you have a big learning curve? Oh yes, definitely. I think time allows you to become very good at your job, but I think my personality helped to shorten the learning curve. ... I know what I know and I know what I don't know, and I'm very good at setting out what the objectives are. So if the objective is to build out a diversified portfolio or the objective is to invest in private equity or timber, I go about learning everything I can about it based on the resources I have to make sure the investment will be successful.
You've built a complex portfolio not typical for a midsize plan. How did you do it? There are a couple of factors that went into our construction process.
First, we don't use a general investment consultant. So we do all of our research in-house. I am very curious by nature and I've surrounded myself with smart people who have a similar bent. It's an encouraging environment with a “best ideas” culture and everyone can bring investment ideas to the table.
Additionally, we have a very functional board structure in which roles and responsibilities are clearly defined. Trust has been built up over decades. The board allows me to do my job and expects me to do my job.
How much investment authority has the board granted to staff? The board approves the asset allocation and additional investment guidelines from the management plan. So it's a wide investment authority.
There is an investment committee made up of two outside appointees with investment expertise, the board chair and myself. Other board members are rotated in and out every six months as observers so they learn more about what's going on.
The investment committee approves hiring and firing of (managers running) major core mandates, say 2% of total assets and above. I have full authority to move money within investment ranges, so I can take a view on the portfolio.
So do you manage the portfolio dynamically? Yes, we've been managing the portfolio dynamically for about seven years. The process is cyclical. Right now, we're underweight traditional fixed income; that's a medium-term view. Other than that, we're pretty much keeping to policy weights.
If we think there's a long-term cyclical trend forming, we'll take advantage of that. We don't do short-term trading; that's better left to other people. Instead, we focus on medium- to long-term trends.
For instance, going into 2007, we were in our lowest target range in equities. We knew something bad was going to happen, but not exactly when or exactly how bad.
Do you wish you had taken an even lower equity exposure? In hindsight, yes. But hindsight is always perfect, isn't it?
What's next on your investment to-do list? We have already gone to a core-and-satellite approach for fixed income, and plan to move to the same structure this month for equities. This will mean huge core mandates surrounded by specialty, niche strategies. The structural change probably won't result in wholesale changes to the equity manager lineup, but there will be changes in how we use most of the existing managers. It's part of our effort to reduce risk in the portfolio.
What about changes on the horizon? There's no question that we're in a long-term, low-return environment. It's part of a huge deleveraging process in the markets and it's going to take years for it to happen.
On the other side of that, there will be massive global growth. I am very optimistic long term, and I am very optimistic about prospects for the U.S. economy as well.
So we're trying to take medium-term views in the portfolio to be sure that when that upturn happens, we aren't negatively impacted.
We are investing in direct real assets, and part of that is to get away from the pure indexing of commodities and to have some inflation protection in the portfolio. Also, the defined benefit plan pool, which we've unitized, is maturing and we must have investments that throw off yield (in order to pay benefits).
That's an important natural shift in the way we have to manage the portfolio.