After a year of upheaval, Kentucky Retirement Systems has a new executive director for its investment office.
The $20 billion retirement system announced Thursday that it has hired Steven Herbert, who most recently worked as chief operating officer at Augustine Asset Management, a Florida-based investment firm. According to the announcement, Herbert’s job is the equivalent of chief investment officer.
In 2020, KRS saw both its director and deputy director of investments leave for investment consulting firm AndCo. And before their departure, Kentucky’s legislature voted in April to split the County Employees Retirement System from KRS. That split will take effect in April of this year.
“Steve’s got a consultant’s background, and he has the experience of being involved with money management firms,” said David Eager, KRS executive director, by phone Thursday.
Herbert was Augustine Asset Management’s COO for nearly three years, according to the announcement. Prior to that, he was the director of institutional marketing at investment and research firm McKinley Capital Management.
Before joining McKinley, Herbert spent seven years at Mercer, working as a lead consultant before leading the development of its global investment manager database, according to the announcement.
“I’m an ex-Mercer person,” Eager said. “I ran Mercer Investment Consulting back in the ‘80s. He and I never overlapped. But I heard about him from colleagues when I started networking and looking for someone for the position.”
Herbert began his institutional investing career at Watson Wyatt Investment Consulting in 1997, the announcement said.
Herbert succeeds the investment division’s former executive director Richard Robben, who, along with deputy executive director Andy Kiehl, left the fund at the end of September. Robben and Kiehl both joined AndCo in October, according to an announcement from the Orlando, Florida-based company.
“It was a surprise,” Eager said about the move. “I’d rather have them stay, but I’m a believer that when you have situations like this, it’s an opportunity to look at staffing. We're going to be a better system for that.”
Steve Willer, who had joined KRS in April as its fixed-income division director, has stepped into the deputy executive director role, Eager said.
Willer and Herbert join at a pivotal time for the retirement system. With the pension split looming, Eager said his team has been working hard. They meet at least every other week and at one point had a to-do list that was 100 items long. The system has had to reassign contracts, set up the asset split with Bank of New York Mellon Corp., its custodian, and set up bylaws for the two new boards.
“It’s just a very complex situation,” Eager said. “The devil is in the details.”
He added that the new system structure will cost more money and add administrative time and preparation, as the number of meetings the investment office must prepare for has tripled. The investment office itself will continue to work for all the entities in the bifurcated system.
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KRS continues to struggle with its funded status, according to its comprehensive annual financial report for the year ending June 30.
Of the five pension funds overseen by KRS, only one — the KERS Hazardous pension plan — had a funded status over 50 percent. The insurance funds fared better. All but one reported a funded status of more than 70 percent, including KERS Hazardous at about 122 percent.
For the fiscal year 2020, the KERS non-hazardous pension plan earned a 2.37 percent return and the SPRS pension earned 2.22 percent, falling short of their assumed rate of return of 5.25 percent, the annual report shows. Meanwhile, the rest of the pension and insurance plans KRS manages earned between 0.19 percent and 0.94 percent, missing the assumed return of 6.25 percent.