David Veal
David T. Veal has a had a long, 14-year career managing public pension funds mostly in Austin, Texas.
Today, he is on his second round of managing assets at the Employees Retirement System of Texas, Austin, now as chief investment officer overseeing management of $43 billion, with $36 billion in the system's defined benefit plan; $4 billion in the 401(k)/457 defined contribution plans; and $3 billion in insurance reserves, Veal said.
Between 2009 and 2011, Veal's first tour at ERS was as an equity analyst and sector strategist and later as a portfolio manager and market strategist.
After his first round at ERS, Veal also worked at other pension funds, such as the $187.6 billion Teacher Retirement System of Texas, Austin, where he served as chief of staff to the CIO and as director of strategic partnerships. Veal also worked as CIO of the $3 billion City of Austin Employees' Retirement System.
Veal returned to ERS and assumed oversight of the pension fund on Aug. 1, 2021, after the previous CIO, Tom Tull, departed.
Regarding the health of the system since he rejoined, Veal said "it's been a smooth ride in part because we're standing on the shoulders of Tom Tull, one of the giants in the industry as well as having a strong investment advisory committee and a great internal team."
Regarding current market conditions, Veal stressed that "our mission at ERS is to earn our assumed rate of return over the long term in order to pay earned benefits and we've done a great job for seven decades. As such, we at ERS remain focused for the long term on the task of investing in great companies and working with capable fund managers. We'll be able to weather market volatility just as we have in the past."
Veal noted that "we do, of course, look at the current market, which is becoming more difficult to navigate. It's a bit like the saying often attributed to the Navy Seals that 'the only easy day was yesterday.'""The drivers of inflation are running the world. It all comes down to inflation," Veal said, stressing that some of the challenges for markets and investors are "the federal fiscal deficits, deglobalization and energy supply problems."
"If interest rates go much higher, that would increase the risk of a systematic credit event and if they head lower, that would work against the effort to contain inflation," he said.
Domestic equities have "performed quite well in recent years but those gains have been largely driven by a few tech stocks that now are richly valued," Veal said, adding "we have made some organizational moves such as enhancing our investment teams to better equip the organization for these market conditions," he said.
That said, for the first nine months of this year, ERS' best-performing asset classes for its $36 billion defined benefit plan have been private credit, with gains of 12.7%; public equity, 11.1%; and infrastructure, 6.9%, Veal said.
"Not surprisingly, given the market conditions and after many years of strong performance, in 2023, the ERS public real estate portfolio was down 4.2% year-to-date Sept. 30, with private real estate down 2%," said Veal.
When asked about changes at ERS, Mr. Veal said "the biggest changes they have made recently have been around organizational structure rather than investment strategy per se."
Veal said the fixed-income portfolio was "split into credit and rates teams to allow for specialized management and to deploy cash more fully in a rising interest rate environment. The rates team also adopted the cash portfolio and the trading desk which has become the Treasury and Trading operation trading."
When asked about ERS' strategic allocation, Veal said "the only recent change to the strategic asset allocation was an increase to the maximum allocation to cash from 3% to 10%," noting that "we used that flexibility to maintain a cash position totaling 6% to 7% of the trust (defined benefit plan) over the past two months, which has added significant value given how weak global equity markets have been," said Veal.
Like many organizations, the ERS investments division saw "an elevated amount of turnover in 2022 that saw a handful of employees retire or move on to more senior roles with other organizations," Veal said, however noting "that the team has been stable in 2023. ERS is a great place to work … as an organization, ERS is committed to market compensation, rewarding performance, professional growth and career development."
