David Erculiani could hardly have started at his new job on a worse day. He joined Constellation Energy Group as director of pension management on September 15, 2008, the day Lehman Brothers Holdings filed for bankruptcy. But Erculiani’s job was never going to be easy. He was charged with “taking a fresh look” and restructuring a $1.3 billion pension plan that was severely underfunded.
To plug the funding hole, Constellation was to make a $271 million payment in March 2009, but the company didn’t want to take on even more market risk — things looked grim enough in the markets as it was. Erculiani, 53, phased in the contribution over five months, slowly adding to equities. In April, Erculiani, who had previously run the pension fund for communications and engineering company AirInc, started making changes to fixed income by adding long-duration corporate credits.
By June the decision was made to implement a liability-driven investment program. He also began an innovative program of hiring managers but not for preset individual allocations, instead giving them fiduciary responsibility for specific asset classes such as global equity. This approach gives managers the freedom to make decisions and harks back to the old pension investment model when banks would run balanced portfolios for institutional clients. It empowers managers to move with the markets as they see fit. The move immediately shaved costs by $1.5 million as he negotiated better fees with managers once they had an asset class to run. That was just the beginning. After ending 2008 down 32 percent, Constellation’s pension fund was up 19.4 percent in 2009, well above the 18.38 percent average return for corporate plans of $1 billion or more.
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