The Virginia Retirement System may sound like a sleepy American pension fund. But, in reality, it’s a $51 billion dynamo with more than 20 percent of its assets in alternatives and a solid 10-year track record (30bps above benchmark). So, it’s an interesting fund that is among those in the US that I keen an eye on. And, as it turns out, it now has a new Chief Investment Officer: Ronald D. Schmitz. Until late last year, Mr. Schmitz was the CIO of the $57 billion Oregon Public Employees Retirement Fund. And, before that, he was CIO of the $11 billion Illinois State Board of Investment in Chicago. So let’s just say Mr. Schmitz is a person of interest. He’s now held three legit CIO jobs, which means he probably has some very useful insights to share. And, lucky for us, our friends over at Pensions & Investments have just published a nice interview with him. So, without further ado, here are some ‘deep thoughts’ by Ronald Schmitz:
On the appeal of moving to the VRA: “A colleague said that it is one of the best funds in the country, and suggested that I take a look. There are lots of very sophisticated portfolios here. There is a lot of conversation. Some people don’t want that, but I say, what a benefit...they can make tactical moves, and — I have to give Virginia credit — they work the assets here really hard. I am amazed at the amount of information that flows across the desks of the investing staff here...This board is more hands-on at the staff level, but much more is delegated to the staff. I think it’s a much smarter governance model. Staff spends the time getting to know managers, and you can make informed decisions. It just seemed to me a smoother way to operate.” On the appeal (and limitations) of internal management: “Right now, about 25% of assets are managed internally. I think there is a general desire to do more of that...One innovation at Oregon was the internally managed equity index program. I was influenced tremendously in the early 80s by having been involved in a small internal equity portfolio when at Kraft Foods. We ran a paper portfolio for a year that followed some buy/sell rules that I had worked on as part of an investment class in graduate school. Both performed well so I thought I was on to something...After an organizational review in 2004, we noticed that Oregon was in the minority among large public funds in that it did not have internal management. We adopted a long-range strategic plan to explore internal management. As I thought about the plan, I realized that it just did not make sense to try and replicate a Wall Street-type fundamental approach with reams of highly paid analysts...At the same time, the advancements in technology and risk-control methods made an index-plus and/or enhanced index approach a possibility. We were fortunate to attract an experienced portfolio manager to Oregon and the internal portfolio was born.”
Good stuff. Check out the whole interview here.
