When Jonathan Glidden began his tenure as the Delta Air Lines investment chief in 2011, he had a daunting task ahead of him.
Delta brought in Glidden to overhaul its floundering pension program, which at the time was 38 percent funded following the company’s bankruptcy and the subsequent global financial crisis.
Glidden’s approach to the problem — employing portable alpha and tail-risk hedging strategies while leaning heavily on consultants to supplement his small team — combined with Delta’s willingness to boost pension contributions at the right time, helped the fund execute a major turnaround over the past ten years.
“I joined Delta because I had a vision,” Glidden says. “It was a good fit for Delta, and it’s something that I’ve been wanting to do my whole career.”
Now, Delta’s funded status is “in the 90s” percent-wise, thanks to what Glidden calls his “benchmark outperformance machine.”
And he’s not done yet.
Glidden grew up a Navy brat bouncing around the U.S. After graduating from Georgia Tech with an engineering degree on an ROTC scholarship, he followed in his father’s footsteps and enlisted. But eventually Glidden decided he wanted to move on from the Navy, and he submitted an application for Emory University’s business school from Dakar, Senegal, where he was deployed.
He got in, and headed stateside to the university where his career trajectory shifted completely. At the time, Glidden was already interested in investing, but it was a course at Emory — taught by Jeff Busse — that shaped his perspective. During the course, Glidden and his fellow students completed a case study on PIMCO’s StocksPLUS funds. According to Glidden, PIMCO was trading derivatives without using cash to collateralize them. The firm instead used some of that money to invest in bonds. The fund was able to capture stock returns, plus duration, credit, and the fund’s manager skill.
“This was the first time I was ever really introduced to portable alpha,” Glidden recalls. “I was like, ‘Wait a minute . . . . They’re cheating, but they're winning.’”
Glidden was hooked on the idea and decided to pursue a second master’s degree in mathematics, this time at a school at the center of the derivatives universe: the University of Chicago.
He juggled his courses with an internship at Emory’s endowment office. Under the tutelage of Matthew Wright, then-director of investments at Emory, Glidden helped to build a real hedge-fund portfolio. At the time, Emory had just sold off a significant chunk of its investments in Coca-Cola stock, paving the way for new investment ideas in its portfolio.
“He’s an individual who is very smart,” Wright says of Glidden. “He has great conviction and high confidence but is very modest. That just speaks to his character and his upbringing.”
In 2007, just before the Great Financial Crisis, Glidden left Emory for Wilmington Trust, an investment and advisory firm, to run a $6 billion portfolio and manage a team of ten. Soon enough, though, the markets tanked. Clients panicked, and Glidden’s role turned to focus on consoling and reassuring folks.
“Something that you learn really quickly is how to be a better communicator,” Glidden says. “There was just so much panic and so much desire for information back then . . . . If you’ve got an inconsistency, or weakly held belief or something like that, it is going to come back to you.”
This experience proved to be pivotal for Glidden’s career. He became a more effective communicator — a skill his peers and colleagues highlight today as one of his best attributes. “The true pivot in his career really stemmed from his positions after Emory, whereby he was challenged to communicate very complex strategies to a broad array of individuals,” Wright says. “The communication skills are really the key in terms of leading a team and being a CIO.”
For instance, Glidden has the ability to translate complex investment topics for Delta’s board, according to Jeremy Getson, a principal at AQR Capital Management whom Glidden calls “an important sounding-board.” Getson says Glidden puts on educational dinners for the board, inviting managers to attend and share their know-how.
“He is good at bringing in people to educate his board,” Getson says. “He could talk to us in our lingo and then he could summarize it on a high level for his board.”
And he does it pleasantly. Both Ken Morge — Delta’s treasurer, who sits on the board’s investment committee — and Kane Brenan, who worked with Glidden as a consultant, mention that Glidden has a wry sense of humor. “To people who don’t live pension stuff every day, it can be very dry and boring,” Morge says. “He’s a very funny individual and knows how to bring that out and make light of some things.”
That’s no easy feat when it comes to the strategies Glidden discusses with his committee. After all, board members aren’t hearing about portable alpha on the CNBC loop these days.
In an investing environment dominated by talk of ever-increasing allocations to private markets and the death of the 60-40 portfolio, Glidden’s portable alpha strategy stands out.
Portable alpha — an investment strategy invented in the 1980s — involves splitting beta (passive market returns) from alpha (performance garnered from active management). To get beta exposure, investors like Glidden use derivatives, funded by leverage, to mimic market returns. The cash underlying those derivatives is then free to pursue alpha.
Back in the early aughts, portable alpha strategies were all the rage. Institutional Investor reported that in 2008, a quarter of the CIOs at the 50 largest public pension funds were using some form of the strategy. That all changed during the Great Financial Crisis, when many investors were burned by the investment style, losing enough money to make it seem unsuitable for many portfolios.
“It’s hard to recall after the Great Financial Crisis, back in 2010 or 2012, how toxic some of those terms were,” says AQR’s Getson. “Portable alpha was not a cool thing.”
It was in this environment, though, that Glidden was making the case for the investment style.
After several years at Wilmington Trust, Glidden had begun to yearn for a role involving less travel — one that could keep him in Atlanta with his growing family.
Enter Delta Air Lines. After years of turmoil, including a bankruptcy, in 2011 the company’s pension fund was sitting at a precipitously low funded status. Once staffed by more than 20 people, the pension fund completely outsourced its operations in 2007 following the bankruptcy. But the fund underperformed during the Great Financial Crisis, forcing Delta to reconsider that decision.
The airline began recruiting for a CIO in 2010, and about a year later, Glidden joined.
Speaking to II, Glidden recalls a conversation he had with Delta’s then-treasurer Paul Jacobson during the interview process. Glidden had laid out three possible routes that Delta could take to improve its funded status.
“You can roll the dice and go with equity,” Glidden had said, noting that the underlying liabilities for Delta were close to twice the market cap of the company. “If it doesn't work out, you’ve got a second bankruptcy.”
Another option, Glidden told Jacobson, was to monetize the $13.5 billion in underfunded assets and work the pension’s way out of debt over a long period of time.
“Or, I think there’s a middle path,” Glidden remembers saying. “And the middle path is what I do, which is to say, I think we should trade a lot of derivatives, because that’s going to allow us to very cheaply put a pretty meaningful amount of explicit leverage into the portfolio.”
Delta took the middle path.
The airline, however, couldn’t fully restaff the pension fund. Instead, Glidden and his burgeoning team took a hybrid approach, using consultants like UBS and Goldman Sachs for manager selection and as sounding boards.
“He’s really just got this partnership mentality with his providers,” says Bruce Amlicke, CIO and head of UBS’s hedge-fund business. Amlicke and Glidden have been working together for years now. “It’s just like you feel like you’re part of his team.”
Brenan, who was on Goldman Sachs’s outsourced CIO team, recalls working with Glidden on changing Delta’s strategic asset allocation. While Brenan’s clients typically asked for three or four revisions, he spent nine months with Glidden, working through 73 iterations of the allocation strategy.
“Think of an artist,” Brenan says. “A normal person would draw a picture for an hour and be satisfied with it. Think of an artist who redoes one brush stroke over and over for six months. I think that’s how Jon thinks of a pension plan.”
Glidden also brought in Amanda Cogar, a colleague at Wilmington Trust, as Delta’s director of pensions. Cogar was eight-and-a-half months pregnant when Glidden asked her to meet him at a bar after work. Wondering why anyone would invite an extremely pregnant woman out for drinks, Cogar showed up — and Glidden broke the news that he was leaving Wilmington for Delta.
“My first response was take me with you,” Cogar says. After she had her baby and took her maternity leave, Glidden did just that. “We just work really well together,” Cogar adds. “We complement each other well.”
Their early crack team was rounded out by Dmitriy Voronkov and eventually Nick Alef, each of whom has been working with Glidden ever since.
Glidden describes himself as an ideas guy — a “mad scientist,” he jokes. He gets up early and stays on email late, Cogar says. He’ll listen to The Economist podcast in his car, and when he drives his kids to school, he discusses investment concepts with them, Cogar says. “He has three kids and a wife, and he absolutely appreciates the value of family,” she adds.
Today, Delta’s portfolio includes synthetic exposure to U.S. stocks, non-U.S. developed stocks, Treasury bonds, investment-grade bonds, high yield, emerging markets, and commodities, among other assets. Half of the total $90 billion in assets under management is held in cash or invested in hedge funds.
According to Glidden, the goal for the fund when using portable alpha is to beat Delta’s benchmarks by at least 2 percentage points. “There are two inviolable rules of portable alpha,” Glidden says. “One, don’t get forced by market conditions to have to unwind your beta. And No. 2, don’t get forced by market conditions to have to unwind your alpha. That’s it.”
If investments go belly up, Glidden and his team have a plan in place to generate six months of benefits payments: tail hedging. That six-month period “hopefully” gives the markets enough time to right themselves. If not, Delta has time to reposition itself and stabilize, at the very least.
A true test of this strategy came in March 2020, when the airline’s revenues came grinding to a halt. Morge, Delta’s senior vice president and treasurer, says that time was traumatic for the company.
“Jon was very focused on ensuring that the plan did not create an issue or a liquidity event for Delta,” Morge says. “He’s so loyal and loves Delta . . . . He’s a huge team player.” Glidden’s tail-hedging strategy ended up being a boon for the investment office during that month. It “was phenomenal,” Glidden says. “Better than we imagined that it ever could be, which was great.”
“When things go a little bit in the direction that you don’t expect, he’s not panicking,” Amlicke says. “He’s really trying to understand it . . . . He ends up approaching things with a very opportunistic mindset.”
As markets start to shift again amid rising inflation, interest rates, and geopolitical risk, Glidden and his team are thinking about how to tweak their portfolio once more.
The key to Delta’s next phase is duration exposure. According to Glidden, if an investor thinks interest rates will rise and is willing to take some basis risk, that investor should seek out exposure to a bond’s interest rate risk.
“You can use risk parity to get duration exposure,” Glidden says. “You can use options on the short end, for duration exposure. That’s what we did back in 2020. And that worked phenomenally well. We’re doing the same thing now.”
Although 2022 is proving to be more difficult than 2021 in terms of making money, Delta’s funded status has continued to improve thanks to rising interest rates and expanding credit spreads. The pension fund is also benefiting from a recent decision to drop its expected annual return target from 9 percent to 7 percent.
Delta’s long-term goal is to get to 105 percent funded. Then, perhaps, the fund will consider de-risking strategies. Glidden credits the fund’s success to date not only to his portable alpha machine, but also to Delta’s own operational turnaround.
“Without the Delta operational turnaround, it would’ve been a good story, but not a great story,” Glidden says. “You needed kind of both the investment side and the corporate side to come together to kind of have the success we’ve had, to the degree that we’ve had.”