City of Austin Employees investment staff has fund management under control but is looking to the past to understand future markets.
In a world beset by a global pandemic, torturous market volatility and nose-diving returns, the Austin (Texas) City Employees' Retirement System's investment team is managing the $2.5 billion defined benefit plan mostly from their homes.
"We've been enabled to work remotely for some time. It's necessary when you're traveling a lot to meet managers and go to conferences," CIO David T. Veal said.
What is new is that the four-person investment team meets every morning and checks in with each other throughout the day via Microsoft Teams.
In addition to Mr. Veal, team members are David Stafford, director of investment strategy; Ty Sorrel, director of investment implementation; and Kelly Doggett, portfolio manager-investment analytics.
Mr. Veal said the investment team's biggest challenge now is gauging probabilities for future market conditions and preparing the portfolio for that. "We're studying the past, taking a long-term look at historical crisis situations in past decades — some before any of us were born — for clues about what to expect," Mr. Veal said.
Near term, the COAERS team is concerned about the performance of U.S. Treasury bonds, Mr. Veal said, stressing that if a lot of these bonds are sold in the next year, it could exert upward force on the yield curve.
"If your best portfolio hedge is Treasuries and they aren't performing, what else can you use?" Mr. Veal said.
Other things are going well. "We're doing pretty well operationally, the city is sending contributions on time and benefit payments are going out," Mr. Veal said.
The COAERS team solved one challenge many defined benefit plan sponsors face as market returns fall — adequate liquidity — ahead of the current crisis.
"We really focused over the last year on providing more liquidity in the portfolio. Three years ago, we didn't even have a cash allocation. During the last crisis, all sources of liquidity froze up. We don't want to have to worry about having cash on hand to pay benefits," Mr. Veal said.
The team added a cash allocation, investments in Treasury bills and maintains multiple liquidity pools, which should enable COAERS to distribute benefit payments even in tough market conditions.
