Since joining Missouri LAGERS as CIO some 20 years ago, Brian Collett has navigated financial crises, overseen a big move by the fund into private assets and seen assets more than triple to $10.1 billion, from $2.9 billion in 2005.
But as he embarks on his next journey after retiring from the Missouri Local Government Employees Retirement System on Jan. 31, Collett said there's one thing that has remained a constant.
"The industry is still characterized by dedicated individuals, boards and staff tasked with managing large pools of assets for beneficiaries," Collett said. "They often face diverse viewpoints, external pressures and the weighted responsibility of their fiduciary duty. Navigating these complexities is challenging; however, this steadfast commitment to doing what's right for the plan is a constant and, I believe, will continue to be the defining feature of the public pension industry."
Collett said retirement for him is more about "exploring new opportunities and avenues within the investment industry."
He already has a new job lined up. On Feb. 1, he was named a managing director at Miami-based global infrastructure investment manager I Squared Capital. In this role, he will "engage and work with institutional investors on strategic infrastructure investment opportunities," according to a release from I Squared.
LAGERS has engaged executive search firm CBIZ EFL Associates to identify Collett's successor. Megan Loehner, deputy CIO, will oversee the day-to-day management of the portfolio in the interim.
The pension fund posted a net return of 4.3% for the fiscal year ended June 30, below its policy benchmark return of 6.6%. But for the three-, five- and 10-year periods ended June 30, LAGERS returned an annualized net 10.3%, 7.9% and 8.5%, respectively, beating the respective benchmarks of 6.9%, 7% and 7%.
Before joining LAGERS, Collett served as senior research manager at the $40.6 billion South Carolina Retirement System Investment Commission. Before South Carolina, he worked as a senior technology analyst at Russell Investments in Tacoma, Wash.
Collett said that when he arrived at Jefferson City he didn't necessarily envision staying at LAGERS for as long as he did.
"Throughout my career, I typically advanced (my) career by changing roles every three to five years," he said. "If you had asked me back then, I would likely have said I expected to stay at LAGERS for about five years before seeking new, intriguing opportunities. However, it's been a surprising journey, as I've now been here for almost 19 years. This duration certainly exceeds my initial expectations and reflects the engaging and fulfilling nature of my role at LAGERS, and more importantly, the relationships that I have built at LAGERS."
The portfolio was conservatively managed when Collett joined the fund in 2005, with about 60% in equities and 35% in fixed income and a distinctive 5% allocation to timber, the only non-public market investment at that time.
It lacked exposure to such asset classes as emerging markets, international bonds, emerging market bonds, hedge funds and other private investments. And it also didn't have an investment consultant because the board had favored an in-house investment staff at the time.
A few years ago, he said, the board revisited that approach and engaged RVK Advisors as its consultant.
As of June 30, 2023, the pension fund's allocation was 38.4% equity, 35.7% real assets, 31.8% fixed income, 7.5% alpha, 5.5% strategic assets, and -18.9% net leverage.
But even in 2005, Collett said he recognized the "importance of broader market engagement and true diversification," so he gradually sought to expand the portfolio's diversity to encompass other market segments.
About three years after the start of his tenure as CIO, global markets were upended by the massive financial crisis of 2008-2009.
"LAGERS was well-positioned during the Great Recession," he said. "Notably, we had a 10% allocation to 30-year U.S. Treasuries, a decision that proved highly beneficial as this portion of our portfolio doubled in value during the crisis. This growth allowed us to strategically rebalance the portfolio by reducing our position in these long bonds and reallocating the gains into other undervalued segments of our portfolio. This approach of classic, disciplined rebalancing within a well-diversified portfolio played a crucial role in our performance."
He further noted that LAGERS never fell below 80% funded ratio and swiftly recovered to over 95% funded status shortly after the Great Recession. It is still 95% funded, he added.
Collett's biggest concern regarding public pension plans is the "politicization" of investments.
"Public pension plans are trusts established for the benefit of their members, who are a diverse group sharing a common goal: the desire for the plan's assets to grow at a reasonable, risk-adjusted rate based on the demographics of the plan, in a legal and ethical manner," he said. "As a fiduciary, this should be your sole focus."
And while controversies surrounding environmental, social and corporate governance have mushroomed in recent years, Collett does not think that's made it more difficult to function as a CIO.
"Throughout my tenure, I've observed such issues arise and then recede," he said. "The first notable ones I recall involved stances on tobacco and both anti-gun and pro-gun issues. This ties back to my initial concern: our focus should be on growing the plan's assets at a reasonable, risk-adjusted rate, in line with the demographics of the plan, while adhering to legal and ethical standards."
As for ESG, Collett said it's only one of the many factors to consider when evaluating an investment opportunity.
Collett said he is not at all surprised by the strong emergence of private equity/alternative assets in the allocations at pension funds.
By the time LAGERS began exploring private markets and hedge funds, the trend toward these asset classes had already started in the broader market, he noted. "I'm not surprised by the current prominence of private markets in pension fund allocations, as it aligns with the principles of good diversification," he said.
"The disparity between the number of private and public companies is striking ... There are around 2,600 public companies and 17,000 private companies with revenues exceeding $100 million. This demonstrates the breadth of opportunities in the private sector. Therefore, a CIO aiming for a well-diversified portfolio should indeed consider a substantial allocation to private companies.''
LAGERS' current allocation to private markets is roughly 50%, which includes private credit, he added. "This is above our target allocation, primarily due to the denominator effect and the sluggish transaction market we experienced in 2022 and 2023," he said.
Collett also noted that he is not overly concerned about the recent inclination toward private assets among institutional investors. "Most investors are underrepresented in private markets when you compare it to the distribution of the U.S. economy between private and publicly traded markets," he added.
Looking back at his tenure at LAGERS, Collett is especially proud of the fact he assembled a "highly talented team, both in terms of investment expertise and operational efficiency" and that he feels fortunate to be a part of it. The investment team has eight people and manages 30% of assets internally.
Regarding other hot-button issues, Collett said that LAGERS is monitoring bitcoin but does not currently view it as an asset class and has not invested in it. He said he supports the views of hedge fund manager Cliff Asness, the founder, managing principal and CIO at AQR Capital Management. "To paraphrase, he does not believe bitcoin constitutes a real investment, yet due to its significant attention, he holds a very small portion in his personal portfolio," Collett said. "I believe this approach is appropriate for me personally, but not for a public pension plan."
Collett's key piece of advice for peers in public pension funds centers on leadership.
"Being a good leader for your team is crucial," he said. "It's important to foster an environment where team members feel supported, understood and trusted. When your team knows that you have their back, they will reciprocate with loyalty and commitment. This mutual trust and support are vital for navigating the challenges and opportunities that the next five to 10 years will bring.''
"As for the portfolio, it's simple but hard to implement. A truly diverse portfolio that is methodically rebalanced will weather all markets."
