Changing times makes finding transformative talent more important than ever – and the competition is everywhere
Updated with correction
Competition is intensifying among corporate and public pension funds vying to attract the best investment talent they can afford.
With assumed rates of return likely to remain low in the foreseeable future for all pension funds and scant chance of public pension plans receiving contributions from government sources to make up any shortfall, sources said the capability of in-house investment teams to achieve the highest possible return is on the line.
"The competition between pension funds for investment personnel, especially public plans, is very intense. They all are looking for better staff with higher skill sets to accomplish the very difficult job of meeting investment expectations," said Frederick "Rick" Funston, managing partner, Funston Advisory Services LLC, Bloomfield, Mich., which provides fiduciary advice to pension funds.
In addition to upgrading and replacing talent in traditional areas such as manager selection, due diligence, asset allocation and portfolio construction, some sponsors are searching for people with new skill sets that increase the chance of their plan meeting and exceeding investment expectations.
Next-generation roles that plan sponsors — especially large public funds — seek to fill are data specialists with experience in quantitative processes, big data analysis, machine learning and other applications of artificial intelligence.
Funds hiring in this area include the C$368.5 billion ($276.2 billion) Canada Pension Plan Investment Board, Toronto; the C$193.9 billion ($145.3 billion) Ontario Teachers' Pension Plan, Toronto; and the $153 billion Teacher Retirement System of Texas, Austin.
Dedicated inclusivity/equity officers also are in high demand to oversee and advance enterprise-wide efforts to diversify pension fund organizations, with Ontario Teachers and Texas Teachers searching now for people to fill the role.
The need for sophisticated portfolio risk management processes has plan sponsors hunting for candidates with hands-on experience using Aladdin, BlackRock (BLK) Inc. (BLK)'s popular risk-management system, and other options.
Chicago-based Exelon Corp., for example, recently hired a new risk officer for its $17.8 billion defined benefit plan and $9.3 billion defined contribution plan. The $34 billion Indiana Public Retirement System, Indianapolis, continued the ongoing build-out of its risk management team with the recent addition of an investment operations officer, which has freed other risk officers to focus more on investments.
From one to another
For other pension funds seeking "traditional skill sets" rather than cutting-edge machine-learning adepts, the source of most senior-level candidates is from other pension funds.
That's because the fiduciary aspect of managing pension funds is "top of mind for many employers," said Dennis Simmons, executive director, Committee on Investment of Employee Benefit Assets Inc., Washington, an industry association for corporate pension plans.
To a great extent, Mr. Simmons said most defined benefit plans prefer to recruit investment professionals with "significant history and experience with the fiduciary issues inherent in managing money."
However, the difficulty many public and private fund sponsors have in attracting promising senior executives and entry-level employees is twofold — compensation and a fund's reputation as a sophisticated investor, said recruiter Michael D. Kennedy, an Atlanta-based senior client partner at Korn/Ferry International Inc.
Mr. Kennedy said the compensation differential between pension fund investment management and money managers is an ever-present issue in recruiting top talent, but he noted that a cadre of large pension funds have overcome the problem to some extent by adding performance incentive pay to overall compensation.
Sources pointed to a group of sponsors, among others, whose incentive plans are an enticing lure for potential recruits. Besides the Texas Teachers fund and two Canadian plans, the list includes the $358.4 billion California Public Employees' Retirement System, Sacramento, the $226.5 billion California State Teachers' Retirement System, West Sacramento; and State of Wisconsin Investment Board, Madison, which manages $110.4 billion in state funds, including $100.7 billion in the State of Wisconsin Retirement System.
These funds also meet the other criteria candidates are looking for, namely, a reputation for having a sophisticated, creative investment culture spanning a broad spectrum of asset classes, where even junior investment staff may be given a lot of responsibility in an area like private equity, Korn/Ferry's Mr. Kennedy said.
CalSTRS is having less trouble attracting recruits because it does offer a salary that's purposefully competitive, said Scott Chan, the fund's deputy CIO, in an email.
"Public-sector salary levels are typically the most common obstacle when trying to recruit and retain investment professionals, particularly in today's booming economy," Mr. Chan added.
But CalSTRS' competitive compensation package — base salary plus annual incentive — helps the fund be an "employer of choice" for high-caliber investment officers, he said.
CalSTRS employees are eligible for incentive opportunities based on quantitative measures, specifically investment performance above set benchmarks over a three-year period, as well as qualitative factors including personal evaluation, said a report from CalSTRS compensation committee presented at a Nov. 7 board meeting.
For the fiscal year ended June 30, 2018, the three-year returns of the fund's corporate governance, fixed income, inflation-sensitive, infrastructure, global equity, private equity and real estate all outperformed their respective benchmarks, resulting in $1.2 billion of excess returns based on "specific staff decisions" net of fees, the report said.
The incentive pool split among eligible personnel totaled $5.35 million or 0.45% of excess returns as of June 30, excluding the fund's chief investment officer and chief executive officer, who have separate compensation packages.
Mr. Chan added that CalSTRS bases its salary and incentive package on the median level of similar packages from other large, complex North American institutional investors, corporate plan sponsors and money managers.
An attractive compensation package likely will help CalSTRS to attract the 50-plus new investment employees in intends to hire over the next several years as it continues to build out its internal investment management capabilities. Mr. Chan added that the new positions will "require a higher level of investment skill and (commensurate) compensation."
Doing it themselves
The State of Wisconsin Investment Board manages 58.8% of total assets internally, a scale that sources said drastically reduces investment management costs.
That pool of internally managed assets as well as oversight of external managers including private equity and other alternative investment firms is another big draw to the fund, said Brian Hellmer, managing director of public equities.
He acknowledged that "the market always is competitive for proven investment talent," but also admitted that SWIB gets such a "huge response" to advertisements for open positions that "it's a challenge to process the applications."
An attractive compensation package, which includes incentive pay, a collegial work environment and employees' ability to "concentrate on investments" compensates for SWIB's location in the middle of Wisconsin, far from a major financial hub, Mr. Hellmer said.
"The biggest initial obstacle to joining SWIB for some people is trepidation about moving to a smaller city from a large one," Mr. Hellmer said. But he added that Madison's university-town culture and thriving economy, which provides ready jobs for spouses and significant others, and its high quality of life generally wins over candidates who are offered jobs.
Regardless of location, many pension systems depend on internship and partnership programs they develop with universities as their main source of younger, entry-level employees.
In addition to its mainstay recruiting programs though Texas-based universities, Texas Teachers soon will partner with historically black colleges to attract more young African-Americans to further diversify its workforce, said Horacio A. Zambrana, head of talent management.
Mr. Zambrana said TRS' focus on inclusiveness is a top priority and the driver behind the fund's goal to "make the face of the investment management division closer to the face of our constituency."
With the assistance of the to-be-hired TRS director of inclusivity, the fund may find it easier to recruit more people with diverse backgrounds as it executes a plan to hire 120 investment analysts and back-office operations people over a three-year period.
Since the beginning of its Sept. 1 fiscal year, when TRS embarked on the hiring drive, the fund has hired 13 new staffers, bringing its total headcount to more than 160 people. The fund aims to add a total of 32 new employees by Aug. 31, the end of its fiscal year.
When it comes to the realm of recruiting data scientists, on the other hand, plan sponsors are facing stiff competition from outside the investment industry.
For example, Ontario Teachers recruits data scientists and technologists to join its investment teams, which make direct investment in companies involved in technology, artificial intelligence, machine learning, data analytics and robotic automation.
But Ronald Mock, president and CEO of Ontario Teachers, said attracting people to join the fund's direct investment team is more competitive than it is for some of the fund's other highly specialized teams including private equity, real estate and infrastructure.
"Our competition for talent often is from banks, sovereign wealth funds, money managers and other pension funds, but when it comes to technology, we are competing with a much broader set of companies in other industries," Mr. Mock said.
For corporations, recruiting investment professionals to join defined benefit plan teams is getting harder as the job description becomes less exciting.
"For better or worse, the (liability-driven)/derisking trend is slowly changing the role of CIO and staff alike," said Charles Van Vleet, assistant treasurer and CIO, Textron Inc., Providence, R.I., in an email.
He stressed that "CIOs are spending more time on accounting, regulatory and reporting requirements and investment teams are increasingly sidetracked on projects related to term-vest buyouts and liability transfers."
Despite the decades of oversight likely required to continue to invest defined benefit plan assets down the derisking glidepath, Mr. Van Vleet said: "if I'm hiring a 25-year-old who loves investing and wants to be an investor throughout their 35-year career, I have a tough time promising a path with an ever-growing learning curve."
Even as his peers tout their growing defined contribution plan platforms, Mr. Van Vleet said he doubts that DC plan jobs will ever pay or promote at the same pace as DB jobs.
"The job of a DC CIO is more akin to managing a buffet restaurant, i.e., building and maintaining a healthy lineup of wholesome, healthy and right-priced food choices. A few protein choices here, a few vegetables over there and a variety of starches. What a participant chooses (all starches?) is their choice. The CIO might try to influence their choices but that is legally cautioned not be overly involved."