There’s Something Weird About Eli Lilly’s Investment Office

Josh Smiley and Susan Ridlen (Illustration by II)

Josh Smiley and Susan Ridlen

(Illustration by II)

The CFO isn’t trying to kill it off.

Perhaps the most fraught relationship in institutional investing is between Fortune 500 companies’ chief financial officers and their investment heads. One might imagine they’re on the same side, united as money folks.

They are not.

For CFOs, having a large enough pool of (usually) pension money to need an in-house investment team means a huge balance sheet item is out of their control, rising and falling at the whim of interest rates and markets, and impacting the company’s stock price. CFOs don’t usually like that.

Josh Smiley is an exception. An Eli Lilly company man for decades, Smiley ascended to the pharmaceutical firm’s C-suite at the start of 2018. Under him and chief investment officer Susan Ridlen, Lilly’s stock has doubled. Even pre-pandemic, the share had climbed from about $85 to more than $130 over the two years ending last December.

And it happened with a thriving old-fashioned defined benefit pension fund. Killing that plan would have been an obvious move for a new executive, Smiley admits.

“We have board members from different industries, who all have been through the process of freezing the company pension plan, closing it down, etc.,” the CFO said from Indianapolis in an interview. “So they’re always asking us, ‘Do the analysis again and convince us that what you’re doing makes sense.’”


Every three years or so, the finance team revisits the pension question.

“The data continue to come back and support keeping it,” Smiley said. “We’re different than other industries: it’s 2 percent of our total cost base. We’re not in a General Motors-type category.” GM has been called “a pension fund that makes cars,” given its $65 billion in pension liabilities and $36 billion market cap.

At Eli Lilly, Ridlen explained, “this pension is not the tail of the dog. It doesn’t wag the company.” Even if the $9.2 billion U.S. pension portfolio swings in value, Smiley said “we’re looking at hundreds of millions of dollars of volatility relative to a $23 or $24 billion top line” of total U.S. benefit assets within a $160 billion company.

Furthermore, employees like it. Lilly surveyed the worldwide workforce on the entire compensation and benefits program, looking at healthcare choice, vacation, sabbatical, and retirement options. Once again, earning an old-school pension attracted high-skill workers and kept them. “I think everybody sort of expected that our younger millennial workforce would be like, ‘We don’t want a pension — we don’t plan on staying at Lilly,’” Smiley said. But depending how you slice it, the pension fund was employees’ favorite or second favorite benefit, regardless of age.

Making it affordable is CIO Ridlen’s job. Performance has been strong, her lean team paying for itself many times over.

“Our asset allocation really matches up much more with an endowment or foundation than it does any corporate fund,” Ridlen told Institutional Investor. “We have 50 percent in alternatives. I run a hedge fund book, but I run it as a portable alpha program. We’re very active.” Her team’s work kicks off about $1 billion for the company in a typical year.

[II Deep Dive: How Not to Crush the Life Out of an Investment Team]

“She is extremely competent,” Smiley said of the investment chief. “We work really well together.” He sees his job as supporting and defending the asset that is Lilly’s investment operation, not meddling with it. Unlike most CFO-CIO relationships, their points of conflict aren’t existential — but they still exist. “‘I think I probably annoy her sometimes,” Smiley said. “I’ll read something in FT or in II or from AQR about index funds versus active asset managers, and will want to talk about it. She’s like, ‘Oh no, not again. Stay off Twitter, Josh.’”

For all of Lilly’s unusual CFO-CIO camaraderie, the company sides with its fellow Fortune 500-ers on one fractious issue: compensation. Investors — good ones especially — make a lot of money on the open market, perhaps more than any other profession. Private colleges and non-U.S. public pension funds pay roughly on par with Wall Street because they want the best talent, and foundations trail not far behind.

Corporate America, with few exceptions, pays investors on par with its other employees. Ironically, this means top talent leaves Fortune 500 firms for nonprofits… to make more money.

Smiley knows he’s vulnerable to Ridlen and members of her small team doing just that. “Susan has an executive level role at Lilly Pharmaceutical. The pharma industry pays well. Indianapolis is a cheap place to live,” the CFO justified. “I think she’s paid well enough to live very comfortably. But if money was her driver, I know she could go somewhere else at this point and make more. We acknowledge that.” And he acknowledges just how tough replacing Ridlen would be. For CIO candidates of that quality, “there are probably far more competitive pay packages at the big colleges and elsewhere.”

Running $23 billion with a half-dozen lightly paid professionals out of Indianapolis — and outperforming plenty of elite institutions in the process — is a point of pride for Ridlen. “Most corporates are on the thin side staffing-wise, and we have to be very, very creative. I know the reality of corporate finance and I love the company I work for,” she said. “I run into these endowment and foundation CIOs at conferences and they’ll say, ‘I manage $4 billion and I have a staff of 18.’ I think, ‘What are you doing with your time?’”

Lilly’s investment team is being shaved down from six to five, which will shake out to $4.6 billion per professional. “I wouldn’t turn down another investment director, if Josh wants to give me one back. He’s a bit of a penny pincher,” Ridlen joked. And if that day ever comes, she has a unique carrot for recruiting fresh talent.

Where else do you get an old-school pension?