Edwin Denson can’t predict the future, a truth he grapples with when setting asset allocation as the new executive director and chief investment officer at the State of Wisconsin Investment Board.
When handling the plan’s $144 billion in assets under management, Denson keeps two lessons in mind: It’s nearly impossible to determine when an overvalued asset class will crash, and it’s equally as difficult to determine if a market shift will be persistent or transitory. As a result, SWIB keeps the portfolio diversified across asset classes, and errs on the side of reacting to market woes rather than attempting to predict them, Denson said.
“It is all clear in hindsight, of course, but hard to tell in the moment,” Denson told Institutional Investor in an email.
In April, Denson replaced long-time CIO David Villa, who passed away in February, leaving behind a legacy of growth and forward-thinking. In 2018, Villa was recognized for his work as the allocator recipient of the Lifetime Achievement Award at II’s 2018 Hedge Fund Industry Awards.
“I felt very lucky to have known David for almost 20 years and to have worked closely with him again over the last few years,” Denson said. “His presence at SWIB and his plan for the agency was the deciding factor in my decision to join, and I am eager to build on the direction for the agency that he had initiated and set out.”
Denson started at SWIB in 2018 as the head of risk and asset allocation. Before joining the pension plan, he worked as a managing director and head of strategic tilting at the Canada Pension Plan Investment Board, which now manages C$519.7 billion (US$414.30 billion) in retirement assets. Prior to that, Denson worked in asset allocation, currency, and risk management at William Blair & Company and at UBS Global Asset Management. In the early stages of his career, Denson was an economist at Lehman Brothers, Primark Decision Economics, and Putnam Investments.
Denson said he met Villa 20 years ago when they both worked at UBS. After Villa joined SWIB in 2006, over a decade before Denson took a position at the pension plan, he shared with Denson about his meaningful work and the importance of the institution for its beneficiaries.
“SWIB’s high level goals and strategy remain the same,” Denson said of his continuation of Villa’s work. “David Villa had assembled a strong management team, that I was a part of, and put the agency on a positive trajectory.”
In his first few months on the job, Denson has focused on reinforcing SWIB’s long-term strategy, one that is largely an extension of the work done under Villa: “As a member of the management council, I had considerable transparency and input into our strategic direction. So, the broad course — a long-term investment horizon, internal management where feasible, focus on people and technology to support the strategy — is one I agree with,” Denson said.
Return, risk, and cost drive everything, he added. “Our longer-term trend has also been to decrease the percentage of assets managed passively and move toward more active management, which will likely continue given the low market return environment that we expect over the next several years,” he said.
According to Denson, this approach is less risky and less expensive.
“There’s only so much that the capital markets can provide us, only so much that a sophisticated and diversified asset allocation can give us,” Denson said. “We have to continue on the path of getting more active risk and giving our internal managers the tools, both from a technology and infrastructure standpoint, that they need to have the best chance to deliver for us.”
Moving forward, Denson said SWIB’s asset allocation may see some additional changes in December. The fund is also beefing up its staff with open positions throughout the agency, many of which are in technology and operations teams. Denson said SWIB is also recruiting for his previous role of head of asset and risk allocation.