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Large corporate pension plan
Douglas Brown, CIO, Exelon Corp.
Liability-driven investment is becoming money management gospel, at least where Douglas Brown travels. When Exelon Corp. tapped Brown in late 2009 to take over its defined benefit plan, which now has $11 billion in assets, the Chicago-based utility was looking for the same sort of liability-hedging talents he had displayed at the former Chrysler Corp. “It was a unique opportunity to come into a sizable platform and take a clean-sheet approach,” says Brown, who had spent his entire 26-year career at the automaker, eventually becoming chief investment officer in 2003. Four years later, as Chrysler’s ownership shifted from Germany’s DaimlerChrysler to private equity firm Cerberus Capital Management, Brown began implementing the so-called LDI approach, becoming more defensive and hedging the company’s exposure to interest rates.
After the ravages of 2008, that’s exactly what Exelon’s traditional structure needed, with 65 percent allocated to equities, 30 percent to fixed income, 5 percent to real estate, no interest rate hedge on its liabilities and little exposure to alternative investments, including hedge funds. Brown, the master trust’s first CIO, started with a 20 percent hedge on Exelon’s interest rate risk and liabilities, then decreased long-only equity and increased the alternatives allocation to more than 20 percent, adding hedge funds and boosting the plan’s exposure to private equity and real estate. The portfolio now has an 11 percent allocation to absolute-return hedge funds. In January, Exelon put $2.1 billion into the pension fund and Brown ratcheted up the hedge to 40 percent as the funded status improved. The portfolio returned 9.8 percent in 2011, compared with Exelon’s target for the year of 8.7 percent. — Julie Segal....