As Pensions & Investments celebrates its 50th anniversary, so does David Bronner, who has served as CEO of the Retirement Systems of Alabama for 50 years. Bronner took on the role at just 28 years old, when most other heads of public pension funds were in their 50s and 60s, he said. P&I spoke with Bronner about the changes he has overseen at the $47.9 billion pension fund, as well as his insights into the future of the retirement landscape. Questions and answers have been edited for style, clarity and conciseness.
Alabama pension fund veteran David Bronner opens up about his 50-year reign as CEO
A: When I first became CEO, the pension fund never got any of the returns from cash management. Matter of fact, they didn’t have a cash management program. It was handled by the treasurer’s office at that time. And they kept all the revenue that they got off (it) if they decided to charge anybody. They tended to loan the state treasury to banks, for example, in the state. And that was up to the treasurer, what interest rate, if any, they wanted to charge, and the retirement system got no credit for it at all. And I think we’ve earned, since I’ve been here, about $1.94 billion, just on the cash management side.
A: Well, the administrative side was a little bit rough for a long time. ... We were using paper records on everybody. And more importantly, we had no backup. At that time, we were, you know, a little tiny agency in government that had no IT department. And how you kept track of all these — even back then — thousands and tens of thousands of people was you had a paper record, and it sort of terrified me being a college administrator of sorts, to say, you know, “What happens, folks, when we are in the tornado belt? We are subject to severe weather in Alabama. What happens?” And people would look at me and just sort of shrug their shoulders, and I said, “That can’t be. You can’t do that.” So we migrated through the microfiche scenario. We had to copy every record to begin with, and finally, (after bringing on new staff) we were able to beef up (both investments and IT) to really be competitive with other sites, because we weren’t at the time.
A: Well, I did very standard investments for many years, maybe 15 or 20 years. It was principally a fixed-income program that we ran for the first 10 years. And then we hit the high interest rates during one decade of, you know, 18%, 20%, 25% U.S. government bonds. And so, probably the most unusual thing I did back then was to be the first one in the South to buy Canadian bonds, because most of the U.S. bonds at that time had five-year call protection. And I knew if interest rates were just outstandingly high, that if you didn’t protect the other side, you are going to lose them all once interest rates turned around. So I bought Canadian paper for the first time (in the 1970s). And we were probably the largest buyer, (at least) in the South, whether it was Hydro-Quebec, or whether it was Ontario, or British Columbia, because they offered 10% to 15% and in some instances, in Montreal, you were able to get non-call high-interest-rate bonds. So that was probably one of the early things that we did.
Then we started doing private placements for a long time. The private placement market does not exist today like it did 28 years ago. That’s where good companies would like to do private debt with a company. I remember buying, for example, Arkansas Power and Light Co. I bought the whole issue because they were rated, as far as I was concerned, as a quality company. But more importantly, you buy the whole issue and you control the deal. So we were in the private placement market up to probably 15 or 20 years ago, when that sort of went away. A lot of the fund business took over that market … a year or two ago, we were a funder of a purchase of Culligan Water. And we’ve done everything from Panera to you name it with private equity. We’re not a big player of private equity and not anything like Washington or Oregon. We tend to have probably less than 5% to 8%, maybe 10% at different times, in private equity. I try to be cautious from the point of view of — our economy in Alabama was, as one of the governors would have said to me, dirt poor. It is a very poor state. So what we tried to do was diversify to the extent that we could, and we did.
A: I’ve recruited young people from universities like Tulane, Auburn and Alabama, and I tell them, you can go to J.P. Morgan if you want to, or you can go to Morgan Stanley. But they’re going to put you in an area, and that’s where you’re going to be — whether it’s real estate, whether it’s stocks, whether it’s bonds … they’re going to pigeonhole you in a bigger organization. A pension fund is traditionally a lot smaller in the number of people. So therefore, we cross-train everybody in everything, and that gives a young person the opportunity to decide which area of the financial world (they want to pursue) — whether it’s private equity, whether it’s cash management, whether it’s bonds, whether it’s stocks, or whether it’s mortgages. All of this is available to you at a pension fund, which would not be available to you at the typical large financial organization, because they’ll put you in a box, and they’ll expect you to stay there.
A: States have taken it upon themselves to do everything humanly possible, and governors have actually taken it upon themselves, as well ... to get the funding necessary for their pension fund to survive. … That, to me, is one of the primary things that I see much more positive today than I did in the past — the awareness that funding the pension fund slowly and continually is really the key to making a success out of it.
The market is very volatile, and will continue, in my opinion, to be volatile in the future. When I first came to the pension fund ... my source of information was a 1-day-old Wall Street Journal. Now, I get the Wall Street Journal every day; I get the New York Times every day. Back then, you didn’t do that. If you got it a day or two late, you’d say, “Oh boy, let me look.” But the markets don’t operate on 2-day-old information (anymore). … So, I think the informational world is totally different. Back then, after a holiday weekend, I would get as much as 2½ to 3 feet of mail from the Wall Street Journal. … The problem is now, it’s today’s news, and it’s over. If you didn’t get it, or you didn’t watch it, that’s fine. It’s gone. So, you’re in a far superior technology world of data information.
A: AI is a marvelous tool. It can do really neat things. And because of the background that I’ve had, I looked at it as: What evil things can it do? Can it do things that nobody’s anticipating? Can it take a snippet of your voice or my voice, and change our bank account without us knowing it? So … I guess I’m going negative on you and saying I look at: Will this tool be abused in the financial sector? And that bothers me. Because it is so sophisticated. It can be really sophisticated for good, but it is certainly capable of fraudsters and things using it.
A: The next 50 years? I won’t be here to worry about it.
A: The tough part about pension funds is that young people don’t care. They don’t care. So therefore, they’re more interested — like if you’re a young husband, like I was, or a young mother — you’re worried about your children and making payments or trying to get a house, trying to get the kids to school, all this sort of stuff. You’re living in today.
Pension funds are really designed to say, “OK, we want you to have a nest egg when you’re old or you get sick.” Because all of us will get old or all of us will get sick; all of us will die. But we don’t want you to be living like the horror stories that you have read about and seen and written about of the woman whose company or state says, “OK, we won’t pay anymore.” I mean, excuse me, I’m 70 or 80 years old, and you aren’t going to send me a check anymore? Well, it’s happened. It’s happened in the United States. It’s happened in Alabama, in some little cities. Prichard comes to mind, for example; that’s a little city next to Mobile, Alabama, where they just stopped. The overall concept that I leave with you is … you’re trying to protect people at the time of their early working (when they often don’t care about their pension), but it will mean all the difference in the world to them when they do become retirement eligible.
A: Well, most of the private industry got away from pension funds because of the burden of really running one; it is a burden. I think, as long as public employees are generally — not in every instance, certainly I’m not one of them — are grossly underpaid, part of their deal to stay in government service … is they love their job. If you love what you do, it’s really not work. It’s a calling that you have to make a difference, and, you know as well as I do, every teacher makes a difference. Every policeman and every fireman makes a difference. And you want to be able to say to them, “OK, we’re not going to pay you what you’re really worth. But in your instance, we’re going to make sure that you aren’t that little old lady or that little old man that all of a sudden somebody shuts off.”
So, I think there will be variations. Basically every actuarial firm has come up with things like a hybrid plan; they’ve come up with a DC plan. That’s usually to satisfy a politician who wants to cut the costs, if possible. The problem of big old pension funds like ours, or the other 50 states, is that you’ve got thousands and thousands and thousands of people that you committed to, so you’re going to take a very long time to get to that (fully funded) status. Other parts of the country have gone from a DB program to a DC program and then back to a DB program, because they’re having a hard time attracting people to the jobs. … So you have to make that job attractive and keep people employed.