New Yorks Pierre hotel was packed with some of the biggest names in finance on September 13 as such legendary investors as Carl Icahn, Ray Dalio, Paul Singer and Steve Schwarzman expounded on the state of the world and global markets at Delivering Alpha, the annual conference organized byInstitutional Investor and CNBC. But in this high-octane crowd, one of the most sought-after participants was Brian Pellegrino, the soft-spoken allocator-in-chief of United Parcel Services investment office.
Pellegrino is far from a household name, even on Wall Street, but the attraction is simple: He calls the shots on $3 billion in hedge fund investments at the UPS pension fund, and he has a track record most of his peers would envy.
So how does a refreshingly modest CIO experience his version of a dance with wolves? I was determined to find out. And Pellegrino, 54, was gracious enough to allow me to accompany him throughout the day.
He came prepared to learn as much as possible, taking notes in the small black notebook included in the canvas swag bag provided to attendees. That was especially the case during the conferences opening session, an interview with Treasury secretary Jacob Lew by CNBCs Steve Leisman, in which Lew argued the case for bipartisan business tax reform following the recent order by the European Commission that Apple pay 13 billion ($14.5 billion) in back taxes to Ireland. Weve got a broken corporate tax system full of loopholes, Lew exclaimed. He also defended the postcrisis wave of financial regulatory reforms by pointing to last weeks news that Wells Fargo had been fined $185 million by the Consumer Financial Protection Bureau and two other regulators for opening millions of bank and credit card accounts, which were not authorized by customers, in order to meet sales goals.
Its good to get a view from the top, whats actually happening about policy and what the Treasury is trying to accomplish, Pellegrino told me after Lews appearance. It would be great to sit in on a debate at that level or a conversation on what the real challenges are, he added. It seems like there is a real solution to many of these challenges.
Pellegrino would have need to call upon his optimism, as the panels and keynotes that followed provided an increasingly grim view of the global economic outlook. So much so that at one point, CNBCs Jim Cramer tweeted, Gloom palpable for #DeliveringAlpha. Urgent need for laughter! Or at least not palpable negativity. Maybe our Best Ideas panel?
More gloom came from Dalio, the Bridgewater Associates founder and CEO, and Timothy Geithner, the former Treasury secretary who earns his daily bread as president of private equity house Warburg Pincus. Weve never been in a world like this, Dalio said on their panel session, The Alpha Exchange. Theres only so much you can squeeze out of a debt cycle, and we are there. For his part, Geithner described the postcrisis regulation, much of which he shepherded, as a messy muck of stuff, and he bemoaned a scary erosion of the pragmatic center in todays hyperpartisan political climate.
Pellegrino took his place on the podium for a morning session titled What Happened to Alpha? He was joined by Mary Callahan Erdoes, CEO of J.P. Morgan Asset Management; Dawn Fitzpatrick, global head of equities and multiasset at UBS Asset Management; and Ross Margolies, founder and portfolio manager of Stelliam Investment Management.
Unlike many pension executives, Pellegrino has a good idea what happened to alpha: Quite a bit of it is in the UPS Group Trusts $30 billion pension portfolio. Pellegrino and his team have exceeded the funds 8.75 percent return target on an annualized basis in each of the past six years because of their agility. Our governance structure allows us to evaluate opportunities and put them to work quickly, the CIO explained, adding that patience is important. To get 6 to 8 percent in the next five years, you have to be prepared to reallocate assets quickly. He also expressed his view that it takes a bear market for alpha to be generated and that dislocation is an opportunity for sophisticated investors to beat the well-known benchmarks.
The coffee break that followed was a much-needed restorative, judging by the attendees rush for the goodies. Turning down his chance to fuel up with refreshments, Pellegrino greeted Ash Williams, CEO and CIO of the Florida State Board of Administration. Williams, who participated in the events opening panel session and described his greatest risk concern as financial contagion in Europe or Asia, with wholesale gridlock in the markets, was one of Pellegrinos few rivals for Most Popular CIO at Delivering Alpha. He oversees a $5.2 billion portfolio of hedge funds, commodity trading advisers and activist funds within a giant $180 billion pool of assets.
Williams and Pellegrino compared notes on their CTA portfolios. We did that back when nobody wanted CTAs and were saying, Theyre no good and Its yesterdays news, Williams recounted. So, we were able to put a big footprint in place all at once by using three funds of funds, which I normally dont do.
After Williams came a quick hello with Carol McFate, CIO of Xerox Corp. and fellow member of the Committee on Investment of Employee Benefit Assets, an affinity group for corporate plan sponsors. Pellegrino then exchanged brief greetings with Robert Manilla, CIO of the Kresge Foundation, and Mary Cahill, CIO of Emory University. A new contact, Nan Morrison, president and CEO of the New Yorkbased Council for Economic Education, then approached the UPS CIO and gushed, saying, You were terrific and straightforward. She asked if she could call him after the event, with an eye toward enlisting him in a teaching engagement. Pellegrino politely agreed to a conversation.
When the conference resumed, Pellegrino sat quietly during each presentation, absorbing it all. There was little time for small talk, although I found common ground when I saw a photo of a Hawaiian golf course on his iPad, and discovered we each have golfers in our lives: his two teenage sons, and my husband and father.
When it was time for lunch, Pellegrino headed toward the main dining room and a prime seat between Diane Alfano, chairwoman of Institutional Investor, and Marlin Naidoo, head of the capital introduction group at Deutsche Bank, which sponsored the meal. (Alas, I was relegated to the journalists table in an adjacent room.) Alfano and the CIO discussed their common heritage as well as her recent trip to Europe, whereas Naidoo was interested in UPSs hedge fund allocation and move to risk premia as a hedge fund substitute.
After lunch, I rejoined Pellegrino, and we scrambled for a quiet space so he could check in with his office. He spoke with Syed Haque, head of public markets, to discuss modifying an equity hedge due to expire in December. Options pricing has become favorable and created an opportunity for UPS to capture additional upside, he explained.
Pellegrino was much taken with the luncheon speakers, Marc Lasry, CEO and co-founder of Avenue Capital Group, and Barry Sternlicht, chairman and CEO of Starwood Capital Group, giving them an outstanding rating. Barrys tour of real estate, where assets are over- or undervalued, vacancy rates and hot-versus-not geographies was fantastic, he told me. I wish I had my notebook.
Back in the main ballroom, Pellegrino ran into Tony Ressler, co-founder, chairman and CEO of Ares Management, as he was coming out of the green room following his stint on the Unyielding Opportunity panel. The two men, who first met this past May at the Milken Institute conference in Los Angeles, exchanged greetings that ended when Ressler said, Well do better next year. My first thought was that the manager was apologizing about his hedge funds performance, but it turned out Ressler was referring to the performance of the Atlanta Hawks, Pellegrinos hometown team, which was swept by the Cleveland Cavaliers in the National Basketball Association playoffs this spring. Ressler purchased the Hawks last year with an investor group that includes former NBA star Grant Hill.
The final refreshment break brought more conversation with asset managers, including executives from D.E. Shaw & Co. and Pershing Square Capital Management. These business conversations were strictly off the record. On the other hand, Institutional Investors conference division executive director, Robin Coffey, was a breath of fresh air, as she had an effusive greeting for both of us. Pellegrino is a longtime participant in Coffeys annual Washington-based conference for corporate plan sponsors and insurance companies.
After filming an interview with CNBCs Scott Wapner for Fast Money, Pellegrino settled back in his seat for the home stretch, which concluded with Carl Icahn. The famed investors comments, such as If youre so rich, how come youre not smart?, led Pellegrino to call him by far the most entertaining speaker of the day.
With his flight back to Atlanta beckoning, Pellegrino bid goodbye and rushed out of the hotel, missing a packed cocktail reception. His key takeaways: Whereas equity markets continue to climb the wall of worry, investors should be feeling better after a seven-year bull run; and the bull market in bonds is coming to an end, but no one knows when. My key takeaway: Brian Pellegrino does not like to eat between meals.
Follow Frances Denmark on Twitter at @francesdenmark.