Stocks are a wonderful tactical asset, Arnott concludes. They have no inherent advantage that makes them better, especially to those who think that the price doesnt matter for the patient long-term investor. I dont know how many decades of carnage will be needed to kill that urban legend.PENSION FUND AND PERSONAL retirement math is pretty basic. You can estimate future retirement costs with actuarial precision, and you know your current assets. Assume a reasonable rate of return on those assets, and the difference is what the state needs to pay in each year. As usual, the devil is in the rate-of-return detail. What is a reasonable expectation for the long-term mean return on CalPERSs portfolio as markets go through these cyclic gyrations? Whats realistic, and whats urban legend? Some critics contend that the system should use a risk-free rate to discount future liabilities and then use close to risk-free assets to fund the liabilities. Pension liabilities are a sure thing, and the risk-free rate is the only corresponding sure thing in the future, according to this argument. Some members of the ecosystem of portfolio consultants and investment bankers who dwell around the deep money pools of public pension funds have joined forces to support this analytic approach, which they label as liability-driven investment, or LDI. Others counter the LDI case by arguing that pension funds have long-dated liabilities and can therefore rely on long-dated returns; they focus their analytic approach on the asset side of the equation to achieve higher returns within acceptable bands of volatility. If they can achieve consistent high yields, then this should also be the discount rate for the liabilities, the logic goes. CalPERS was clearly not an outlier in its 7.75 percent return target. In its 2011 analysis of 125 public pension funds, Wilshire Associates found that state pension funds median assumption of portfolio return was 8.0 percent, a full 150 basis points above the return that Wilshire thought funds would achieve. I asked Rob Arnott how so many state pension plans could persist in making optimistic return assumptions. If pension funds can hire reputable consultants who tell them that they can earn 8 percent, they can assume 8 percent, he said. The conflicts of interest are vast. Suppose Im a consultant and say, Bonds give us 2 to 3 percent at current yields, stocks give us 4 to 6 percent at current valuation levels, so we think you should fund the pension based on a return assumption of 4 percent. No public fund will hire me, even though Im more sensible than the advisers who merely extrapolate the past. And there will be no consequences for the boards, because theyre operating on the basis of advice from reputable consultants. After Arnotts presentation I chatted over a spare (but thankfully warm) buffet lunch at the Best Western with the genial Henry Jones, the board member elected by the retired beneficiaries. He chairs CalPERSs finance committee and knows his way around a balance sheet, having previously worked as CFO of the Los Angeles Unified School District, which has a $7 billion budget, and headed up its Annuity Reserve Fund Board. I stood on the balcony of the Grande Ballroom, drinking in some fleeting sunshine before it was my turn at the lectern. I started by saying, As you hold the CalPERS portfolio profile in one hand and the risk simulation in the other, how do you qualitatively assess if this is the right combination of risk and return for the pension fund? Like all boards or investment committees, your job is to apply your sense of the way the world works to the quantitative forecasts and see if it makes sense. CalPERS has the luxury of being a truly long-term investor. What will the long-term future look like when it comes to returns and volatility? Will it look more or less like the past, a mean reversion world? Or will it be discontinuous? Joe Dear had invited me after reading an article I wrote for Institutional Investor in July 2011 about the global macro reference scenarios and structured ways to think about risk and return in qualitative terms. As I researched the CalPERS presentation, I took my cue from David Nierenberg, founder of Camas, Washingtonbased D3 Family Funds and an adviser to the Washington State Investment Board. He told me that when he thought long and hard about WSIBs portfolio risk and return, he engaged in what he called structured worrying. Ive been systematically researching the reference scenarios that traders use at global macro hedge funds and writing in Institutional Investor about how these scenarios affect financial portfolios. So for CalPERS I tried to think about a set of reference scenarios with a horizon of ten years. For structure I turned to Global Trends, a rolling 15-year forecast produced every four or so years by the Central Intelligence Agencys National Intelligence Council. The next one comes out in December of this year prudently, after the presidential election. I helped write portions of the 2005 version when I was at the CIA, and I used some of its lessons when I moved to the Pentagon. In Washington we were very concerned about whether we were facing a mean-reverting or a discontinuous world. For the CalPERS board I picked out four key scenarios that featured in past Global Trends forecasts: central bank monetary policy, sovereign solvency, a rising China and hydrocarbon supply, with each scenario having two potential outcomes over the long run. One outcome was based on a mean-reverting world, which looked pretty much like the past two decades and was generally positive in portfolio effects. The other was discontinuous and, it turns out, generally negative. I predicted how each outcome would drive the CalPERS portfolio in terms of return meaning the risk-free rate, the equity risk premium and inflation. Then I walked through the contrasting effects of each outcome in terms of volatility, including the amplitude of price shocks, the frequency with which these shocks could occur and the cross-correlation among asset classes. Id spent several weeks testing and refining these predictions with portfolio managers and Wall Street traders. After walking through the pairs of outcomes for all four scenarios, I tried to summarize: A mean-reverting world is generally favorable for your portfolio. The risk-free rate is flat or down. The equity risk premium may stay at the upper end of Arnott territory, though still below historical levels. Inflation, on balance, will be higher. Both the amplitude and frequency of price shocks will be moderated, although cross-asset correlation will continue to climb. I continued: In sharp contrast, a discontinuous world may be very hard on the CalPERS portfolio. The risk-free rate remains low and flat. The equity risk premium will be generally lower. The outlook for inflation is mixed. Volatility is up across the board. How do you use these two alternative worlds to qualitatively assess the CalPERS portfolio strategy? I concluded, with a PowerPoint flourish. If you assess that some or all of these discontinuous outcomes are probable and the discontinuous outcomes do cluster together then you must also conclude that the future environment for the CalPERS portfolio looks more discontinuous than mean-reverting. In sum, more volatility for any given level of return or less return for accepting any given level of volatility. Judging by the questions from the board members, it was clear that theyd followed the argument and digested the implications. After I sat down, relieved and warm at last, Dear and his investment team filed up to the table and took their turns explaining the portfolios performance in 2011. There was partial sunshine by then; I could see all the way out to the tip of the Monterey Peninsula. Articulate, precise and personable, Dear had the boards complete attention and, it seemed to me, respect. The news wasnt that great. When all the reports were in, the total portfolio return for 2011 was 1.1 percent. Although disappointing, this was in line with the portfolios benchmarks because 2011 had been a tough year for anyone with Cal-PERSs portfolio profile. And Dear had done better for the CalPERS portfolio than I had done for the Shinn portfolio in 2011, which still depressed me. Looking further back, the annualized return on the CalPERS total asset portfolio had been 6.48 percent for the previous decade and 1.47 percent for the previous three years. It then kicked up to 15.69 percent as of midyear 2011 before falling back to 1.1 percent for the full calendar year. By the same token, the portfolios volatility defined as the standard deviation of the portfolio returns on an annualized basis over the ten-, three- and one-year horizons was 13.78, 13.01 and 6.82 percent, respectively. As the official statement later summarized: Due to the high volatility of global equity markets in 2011 (caused in large part by the ongoing Euro debt crisis and the slowing of global economic growth), the fund experienced a 7.9 percent loss in its public equity asset classes. CalPERS U.S. equity portfolio lost .03 percent, while its international equity assets declined 13.9 percent. Dear had lots of experience with the whipsaw of market reversals when he was executive director of the Washington State Investment Board. According to several people Ive spoken with, he successfully grappled with what WSIBs current executive director, Theresa Whitmarsh, describes as skewed investment decision processes, deficient manager monitoring and careless internal controls. In 2009, CalPERS hired Dear and charged him with improving the portfolios risk management while also delivering on the targeted 7.75 percent return a tall order on both counts in a crisis atmosphere and increasingly chaotic markets. It was a gutsy move for Joe and a loss to WSIB but a big gain for Cal-PERS, says D3 Family Funds Nierenberg. Dear was familiar with the debate over the right analytic approach to running the CalPERS portfolio, and he was convinced that the system needed to manage its assets and liabilities in an integrated fashion. He was skeptical of the LDI approach, not least because of the additional expense and complexity it would impose, but he was also intensely aware that the traditional approach of betting on different combinations of asset portfolios had its own shortcomings. In fact, he began his Monterey panel discussion by pointing out that he, the CIO, was appearing together with Alan Milligan, the chief actuary, thereby presenting both sides of the CalPERS ledger in an integrated fashion. I linked up with Dear at a Pacific Pension Institute conference in Malaysia late last year, and we discussed different approaches to pension asset and liability management. I knew him from ICGN meetings and also from some sessions at attorney Millsteins corporate governance institute at Yale, where I had made presentations over the years. Dear was cautious about LDI. LDI may be right for some private pension plans but not for CalPERS, he explained. Im not sure what the optimum solution for CalPERS is, but we have an obligation to our members to get it right. We are in a position where we have to chuck out the old asset allocation model without having a fully finished solution to replace it. This is going to be an iterative process. All big institutional investors have some variant of the problem facing CalPERS. State governments want to minimize payments into the system at the same time that benefits promised in the past automatically swell. So all look to high portfolio returns even as the flood of global liquidity and quantitative easing are driving absolute returns lower and lower. Paul Ryan, a Republican U.S. representative from Wisconsin, challenged my former Princeton University professor Ben Bernanke on the effects of QE on pensioners during some tense House Budget Committee hearings on February 2. Do you measure the effects of these sorts of policies on savers? asked Ryan. Are you concerned at all about the very, very low interest payments that these savers are getting from these kinds of fixed-income assets, which are hitting our savings and investment side of the economy in exchange for helping the borrowing and consumption side of the economy? We think about that a lot, replied the Federal Reserve Board chairman. I recognize that for people on a fixed income or whose main income is interest on a CD, it imposes a hardship.
Journalist Michael Mackenzie rather acidly observed in the Financial Times in January, As we have seen with QE1 and QE2, the administration of such medicine warps investing fundamentals as it delivers a brief sugar high for markets. . . . But the biggest cost is how low rates are crushing retirees, money market funds, pension funds and insurers managing long-term liabilities that require much higher returns than are on offer. . . . It leaves insurers and pension funds with a choice of either underfunding their future obligations or taking the risk of moving into dicier investments in search of higher returns.AS EVERY INVESTMENT PROFESSIONAL knows, there are only three ways to square this portfolio circle: Accept more volatility and get higher returns, get higher returns at the same volatility (the investors equivalent of pure Hogwartian magic), or achieve current returns and volatility at a lower operating cost. The first way to try to fill the gap is more of the same, by climbing out further on the risk frontier into higher-yielding assets, repeating the Yale model. This is precisely the strategy that set up CalPERS for its big losses in 200708. But with the Federal Reserve clearly intent on driving the risk-free rate into the ground, pension funds and endowments with real commitments to meet in the future are left with nowhere to go but further out on the frontier. During 2011, CalPERS had about 20 percent of its portfolio in fixed income; 50 percent in public equity; almost 15 percent in private equity; 10 percent in relatively illiquid holdings of real estate, infrastructure and absolute-return hedge funds; and 5 percent in cash and cash equivalents. The equities and long-dated assets are inherently more volatile than fixed income, increasing the probability that the CalPERS funding ratio could fall below the 60 percent level, according to LDI accounting methods. So LDI is an unpleasant cocktail any way you drink it. A lower risk-free rate increases the net present value of the stream of future pension liabilities, thus driving down the starting point of your funding ratio. Investing in higher-yielding assets to grow out of the underfunding hole exposes you to volatility that can drive your funding ratio even lower, possibly into the danger zone where state authorities or the beneficiaries may clamor to shut you down. CalPERS is not alone in this fix. As UBS strategist Thomas Doerflinger warns: Pension funds have been hit by a nasty combination of declining interest rates (which increase the present value of the Project Benefit Obligation) and poor global stock market performance (which reduces plan assets). As a result, the solvency rate of pension funds, which was already low at the start of 2011, has declined to worrisome levels that put plan sponsors in a bind. This nasty twist isnt limited to public pension funds. According to some analysts, the pension funding gap of the Standard & Poors 500 Index companies doubled from 2010 to 2011 because of the plunge in the risk-free rate and the resulting swelling of the net present value of their liabilities. When a private pension plans funding ratio falls below 80 percent, ERISA rules raise a red flag and impose several restrictions; if the ratio falls below 60 percent, the plan must freeze benefits. For the S&P 500, the accounting rules are strict and the disclosure is comprehensive. The second way for CalPERS to fill the gap is by obtaining higher returns at the same level of volatility for any given segment of the portfolio. This means squeezing out additional alpha without swallowing additional beta volatility at the same time the portfolio managers Holy Grail. The hope here is that CalPERS can use its size to attract the best and the brightest to manage its portfolio, to fundamentally outperform their peers in areas that arent correlated with other asset markets. CalPERS has about 8 percent of its portfolio in hedge funds, an asset class sometimes referred to as absolute return. The hunt for true alpha forces pension funds even closer into the arms of those talented traders and managers who can deliver excess returns year after year without blowing up. These traders are employed (and well compensated if successful) at hedge funds, private equity houses, real estate developers and other specialized intermediaries. About 60 percent of global hedge fund assets today come from pension funds, endowments and foundations. The third way of filling the gap is for the pension fund to obtain these returns at lower costs. This means either getting the money managers to cut their fees or taking much of the management task in-house and benefiting from economies of scale. CalPERS spent $1 billion in fees for external money managers in 2010, but squeezing this is a tall order for Dear and his colleagues in the investment office. Hedge fund fees have shown only marginal downward pressure despite the shellacking many of the funds, and their investors, took in 200708. For example, 2 percent management fees and 20 percent (or higher) performance fees remain the rule for the best-performing hedge funds. Thats no surprise given that the bulk of excess returns comes from a relatively small number of hedge funds. By one estimate, the top 100 funds account for a staggering 90 percent of the excess returns. These high performers are not eager to bargain down; a lot of institutional money is chasing the same talent pool, after all. Moreover, the hedge fund world itself is going through slow but constant consolidation as a result of the shakeout of 200708, expanding regulatory overhead and a higher level of due diligence by institutional investors. The private equity world is even more concentrated, and the fees reflect this, at least for those funds that manage to return high margins to their institutional investors. That said, the big private equity firms have shown some recent willingness to negotiate management fees. News reports have suggested that Carlyle has had to cut fees and offer other unusual incentives to lure investors to its new, $2.3 billion real estate fund.
The alternative path to cost reduction is to bring more money management tasks in-house and, of course, to do a good job of it. CalPERS manages twice the amount of funds internally as its pension fund peers do: 62 percent versus an average of 33 percent. The California plan also has adopted a passive investment approach with one third of its assets, compared with 22 percent for its peers. Passive management is more cost-effective than active management and, for a fund of CalPERSs scale, makes a lot of sense.KEITH AMBACHTSHEER, A UNIVERSITY of Toronto finance professor and an expert on pension fund management, makes a convincing case that large pension funds like CalPERS can, with the right incentives and governance structure, consistently bring in good portfolio returns at a lower cost by managing money internally rather than outsourcing it to professional managers, especially in the high-cost private market asset categories. He points to the outstanding 20-year performance of the Ontario Teachers Pension Plan (which he had a hand in designing) as a real-world example. Generating lower fees through in-house management isnt easy from a governance standpoint. The pension funds board needs to approve a compensation structure for its managers that is competitive with the private sector. This can give a trustee sticker shock. Says James McRitchie, a CalPERS beneficiary and corporate governance expert: The CalPERS trustees have to worry about public perception of what public employees are paid. Although the public sector often pays clerical staff, firefighters and police officers relatively well compared to what employees with similar educational levels might be paid in the private sector, the reverse is true of professionals with advanced degrees, such as executives, scientists, attorneys, doctors and money managers. Ambachtsheer cautions that trustees must accept the reality that people with the requisite skills to generate good top-line performance in private markets are expensive. They must be willing to make the case to their plan members that these higher internal compensation costs are a small price to pay to end-run the external 2-and-20 tolls still prevalent in todays financial services market. CalPERS board president Feckner argues that the plan has already bitten that bullet. CalPERS has saved $156 million annually using internal management, according to a cost-effectiveness measurement, he points out. Our investment staff compensation is reviewed and examined regularly with an independent consultant to ensure that we find ways to compete in the marketplace but also maintain prudent levels of compensation. These can often be difficult decisions, but its something that needs to be considered when operating in the public sector. Operating in the public sector means that CalPERSs operations, including board meetings, are conducted with a degree of transparency that would astonish private sector boards. A small team carefully recorded most of the Monterey session for subsequent posting on the funds website. Id spent quite a few uncomfortable hours under public scrutiny in 200708 as an assistant secretary of Defense, fielding questions interspersed with criticism from congressional overseers as the TV cameras rolled. The glare of the klieg lights can enlighten the public but also mislead when the subject is governance, particularly the governance of money. CalPERSs governance scandals led many to the mistaken belief that the systems funding shortfall was due to corruption and incompetence at the top, says McRitchie. Although devastating to the systems reputation, the financial impact of the boards ethical lapses was probably minimal. But as the drumbeat of negative publicity continued through 2011, CalPERSs board and management saw the corrosive effects of governance problems on the funds political power and performance. They observed the reputational hit the retirement system was taking on almost a daily basis in the press and in its dealings with the state. Although few were finance experts, the CalPERS trustees were aware of the well-established positive correlation between pension fund governance and portfolio returns. Ambachtsheer and his colleagues at the University of Toronto tested this relationship in a study conducted in the late 1990s and repeated in the mid-2000s. Their basic finding: Pension funds with good governance ratings outperformed those with poor ratings by an average of 100 to 200 basis points per annum on a risk-adjusted basis. Although the Toronto groups methods have some inevitable shortcomings for one thing, governance is inherently difficult to measure objectively its statistical conclusions jibe with common sense. Cautions Weil Gotshals Millstein: The relationship between governance and performance is probably positive but hard to prove. At the end of the day, good portfolio performance comes from choosing good managers, inside and out, and that requires good governance. Dear and his colleagues in the Cal-PERS investment operation came up with an innovation that effectively combines good external and internal management through what they call the multi-asset-class portfolio, or MAC Partners, program. According to Dear: The idea is to select three or four external managers to handle around $1 billion each, within a given risk budget and return targets, with a compensation structure based on their performance. Its one way to attack our dynamic asset allocation problem; rather than make all the allocation calls inside CalPERS, we provide the risk parameters consistent with our investment committees guidelines and let the managers figure it out and pay them accordingly. In terms of top-level governance of investment strategy, Dear concurs with the best practices put forward by the World Bank. According to the formula concisely summarized by Sudhir Rajkumar, head of the Banks pension investment advisory group, The board should focus on just three things: defining the pension plans financial objectives, agreeing on the investment horizon and setting the investment policy and active risk budget. Once they decide on these strategic decisions, they should delegate execution to the plans staff, with metrics to ensure accountability. Dear agrees with this approach. He wants to have the CalPERS board as a whole clearly define the asset and liability management strategy. Asset allocation isnt a technical problem that can be solved by financial professionals, he says. It is a strategic decision set by the board as a whole. Much to the members credit, and thanks to Dears persistence, thats exactly what they were all doing at the Monterey Best Western on January 23. As part of getting their heads around this strategic decision, in 2010 CalPERSs board members turned to a former head of Deloittes governance and risk management practice to help structure the position of a chief risk officer. Frederick Funston, the prime author of Surviving and Thriving in Uncertainty: Creating the Risk Intelligent Enterprise, had made a specialty of dealing with firms under stress when he worked in Deloittes global risk practice. Funston and his team spent several months in late 2010 and early 2011 in Sacramento, interviewing up and down Cal-PERSs ranks. They kept running into the residual effects of organizational tensions during the high-stress period when the portfolio was cratering in 200708 tensions that ran deeper than the overhaul of the risk managers job. For example, the board had four direct reports in senior management and dealt with other senior managers on a daily or weekly basis. There were multiple board committees that met frequently, with sometimes overlapping mandates. In addition to putting newly appointed CEO Stausboll in an awkward position, these multiple reporting channels diffused authority at CalPERS and obscured accountability. In its report to the board, Funstons team wrote: Accountability is a two-way street in holding management accountable, the board must also be prepared to hold itself and each board member accountable as co-fiduciaries. The board must rely heavily on the moral compass and motivations of the individual trustee to do the right thing and improve their own effectiveness. But what is doing the right thing, for a public pension fund trustee? To whom is the trustee primarily responsible: current beneficiaries, future beneficiaries (who are paying into the system on the promise of future benefits), the government of California or its citizen voters? There is no bright-letter template for trade-offs among the pension trustees multiple potential obligations. As Millstein observes: The concept of fiduciary responsibility for a nonprofit board is extremely underdeveloped in fact, almost nonexistent. But these pension boards do have a firm legal basis for choosing their priority of fiduciary responsibility, providing they think it through carefully and consistently. Funston and his colleagues reviewed the academic literature to glean a set of best-practice principles of governance and fiduciary responsibility for public pension funds. They surveyed 16 of CalPERSs closest peers to construct a group of governance benchmarks with which to compare the funds current practices. Then they translated these principles and the benchmark data into a set of operational recommendations for CalPERS. Funston and his team presented the board with the benchmark results and with a list of governance reform suggestions at its August 16, 2011, meeting. It was a lively debate, recalls Feckner. Stausboll agrees. The debate and discussions about the board governance reforms were the most valuable part of the process, she says. Hearing the viewpoints of board members and colleagues firsthand helped us reinforce and refine our delegations to staff, the roles and responsibilities between the board and staff, and ultimately expectations. With Feckners support, the board ultimately voted to adopt both the principles and the operational changes recommended by Funstons team. The board agreed to several major changes in reporting procedures and mandates, to rebalance the four elements of the governance relationship that Funston had flagged early on: to improve trust and confidence with the staff, to focus on the important and tough strategic questions, to enhance decision-making insight and to clarify organizational accountability.
To remedy the problem of diffused authority, board members streamlined CalPERSs reporting structure, reducing the number of direct reports to the board to just two: Stausboll and Dear. They improved trust by tightening even further the ethical rules and disclosure guidelines for all managers and board members at CalPERS. As board members, we have a sacred trust to protect, and the hard lessons we learned over the past few years taught us that we cant take that for granted, said Feckner in an e-mail to me. We needed to move quickly to assure our members and all Californians that our decisions are transparent and above reproach. We wanted to make sure that everyone understood that the bar was very high that we act according to the highest ethical standards.WHAT I WITNESSED AT MONTEREY struck me as a clear example of focus on an important and tough strategic question arguably, the toughest question facing any public pension board, and certainly the one with the biggest public policy consequences. As I drove my rental car along the Pacific coast back up to San Francisco, the sun gloriously lighting up the green California foothills, it struck me again: Who would want this job, much less campaign for it? I empathized with the CalPERS board members. If they stuck with a 7.75 percent return target and stretched for yield and then the portfolio got hammered by the volatility that comes with that riskier territory, theyd be blamed by beneficiaries and voters alike, no matter how many consultants told them it was okay. If they backed off to a lower, safer number in expectation that the world was likely to be less benign for investors, theyd be vilified by Sacramento for sending much bigger bills to government employer units throughout the state, which was already in a pitched budget battle over scarce resources. As they grapple with this harsh dilemma, the board members endure long hours and a lot of tedious math. They dont get paid very much to do this, and they certainly arent getting lavishly entertained. Last year they voluntarily adopted organizational and governance reforms that made them operate in a transparent fishbowl. The critical scrutiny must be excruciating. But so far, the reaction of Sacramento politicians and of CalPERSs peers to the governance reforms has been positive. WSIB board member Nierenberg says: Those of us who serve on pension boards as fiduciaries really do carry a sacred trust to current state employees and their families, to former employees and their families, and to the taxpayers, who are always at risk of making up shortfalls. Im glad to see CalPERS affirming the gravity of these obligations and committing to govern itself accordingly. The Sacramento funds reform efforts are also applauded by Peter Clapman, former senior vice president of asset management firm TIAA-CREF, a well-known advocate of corporate governance reform and the principal author of the widely respected Clapman Report on best practices for managing pensions, endowments and charitable funds. The CalPERS governance recommendations meet the highest standards of good governance, Clapman says. When CalPERS implements its report, it will serve as a model for all public pension funds. So all eyes are now on CalPERSs implementation, particularly on the tough question of portfolio strategy. Good governance is linked to positive portfolio performance and robust funding levels by states, observed governance guru Millstein as we sipped coffee in his airy office overlooking New York Citys Central Park in December. But it cuts both ways. Poor governance causes mediocre portfolio performance and erodes the support of politicians and citizens alike.
He turned and looked out the window at the bright winter sky. I have high expectations for CalPERS, he said. Their turnaround matters to a lot of people besides the Californians. All state public pension funds face this same set of problems, and its a major public policy challenge on a national scale. We all have a stake in this.
James Shinn (email@example.com ) is a lecturer at Princeton Universitys School of Engineering and Applied Science. After careers on Wall Street and in Silicon Valley, he served as the national intelligence officer for East Asia at the Central Intelligence Agency and then as assistant secretary of Defense for Asia at the Pentagon. He serves on the advisory boards of GSA, a New Yorkbased financial advisory firm, Oxford Analytica and CQS, a London-based hedge fund.