Most Public Pensions Don’t Know What They Own
But after four years of labor and at least $48 million, Wisconsin’s massive retirement fund is a standout exception.
The State of Wisconsin Investment Board, responsible for more than $110 billion in public assets, has finished a full-scale operations and technology overhaul of its internal systems, SWIB announced this week.
CIO David Villa describes the initiative — which offers the team daily position, performance, and risk data, among other innovations — as “moving from siloed investment technology to a sophisticated asset class and risk aggregated model.”
The organization has earned a reputation for investment excellence, in part by running much of its portfolio successfully in-house versus outsourcing to Wall Street. But a few years ago, SWIB saw a sophistication gap between its investment strategy and its systems. By 2014, operations and technology were its second-highest priority for the next four years, ahead of people and culture, decision-making, and innovation. (Investment strategy came first.)
[II Deep Dive: David Villa, SWIB CIO, on Bringing Asset Management In-House]
SWIB in 2013 enlisted Citisoft — a consultancy devoted to investment-office technology and operations — to advise and manage the project. The just-completed endeavor is one of the pension industry’s largest technology and operations transformations to-date, according to Citisoft. It happened in Madison not because the fund’s operations were especially dire relative to peers — a low bar — but because SWIB could actually pull it off.
The fund “is unique,” Citisoft managing partner David Bates tells Institutional Investor. “The state has allowed them to operate in a way that they’re focused on the interest of the trust and retirees” — a value proposition championed at every level. “That’s translated into the ability to hire talent, and to invest in their technology and operations platforms,” Bates continued. “We don’t always see that in the public sector.”
Like many of its peers, SWIB used to rely on its monthly back-office accounting books as its primary source of portfolio data. Knowing what it owned — or, as Bates puts it, “daily views of accurate positions and performance” — involved almost every group across the organization doing some sort of data validation. No longer.
“Now, they’ve got accurate daily views of the trust, the returns, and the risk profiles,” Bates said. “They can focus on the analysis rather than the processing and reconciliation.” For example, the new capacity for cross-asset risk modeling lets the team play out “what if” scenarios, including stress tests.
Bates declined to say how much Citisoft charged for its efforts. But according to meeting minutes, SWIB paid the consultancy $10.5 million for its services in 2016. Internal staff increased as well: the fund’s board approved an extra 16.25 positions in 2014 and 2015, primarily to support the project’s implementation, a state audit shows.
According to SWIB’s Executive Director Michael Williamson, the “massive undertaking” finished on time and under budget.
SWIB is a finalist for Technology User of the Year at II’s inaugural Allocators’ Choice Awards, up against Singaporean sovereign fund GIC and Northwestern University’s endowment. Winners, chosen by peer vote, will be announced November 28 in New York City.