Bob Maynard recently retired as chief investment
officer of the $21 billion Idaho Public Employee Retirement System. He
served in that role for 30 years. Richelle Sugiyama, a longtime
investment officer at PERSI, was elevated to replace him. Maynard
recently spoke with Markets Group’s David G. Barry about his career, his
guiding mantra, and his efforts in taking PERSI from a “disaster” to an
essentially fully funded plan.
Markets Group: Bob, you spent the
early part of your career working for the State of Alaska in an array of roles,
including helping to put together the Alaska Permanent Fund. That fund –
investing the state’s oil revenue – is now valued at more than $75 billion.
What led you to join the Idaho Public Employee Retirement System?
Bob Maynard: I had been in Alaska for about 18 years.
At about that time, I was deputy executive director of the Permanent Fund. I’d
been in the (attorney general’s) office. I had done a lot of stuff in Alaska
back in the ‘70s, ‘80s and early ‘90s. And then this job opened and my wife,
who had been executive director of the Post-Secondary Education Commission,
decided she wanted to retire. We'd adopted our second child. Juneau is a
marvelous place, but it is not a place to be if you're spending most of your
time at home. It's in a rainforest. And no roads in or out. And so, this job
opened for me down here in Boise. We had been there 18 or 19 years and hadn't
seen a warm summer night since the ’70s.
MG: How would you describe the condition of the
pension fund when you got to Idaho?
BM: It was seen as a disaster area. In the six or
seven years before I had gotten there, they had originally been with four bank
trust departments and that had turned out poorly. Basically, if they had been
in any asset consistently, including cash, from the beginning of the fund in 1965
to when I got there in 1992 they would have been 50% higher. First, after the 1972-1974 crash they went
completely away from equities and missed the huge equity run up. They were just
chasing trends. Then in the late ‘80s, they went with the Frank Russell Trust
Company, which was an (outsourced chief investment officer) but they had high
fees and bundled everything up. That caused huge amounts of controversy and the
legislature rewrote a lot of the statutes. Then they went through four CIOs. I
was the fourth Chief Investment Officer in four years. By the time I had gotten
there, the bones were good. They had a good statute, they had a new board that
was trying to do things right, but they were at the very, very bottom of the
standings. And peer reviews at the 100th percentile, they were 60% underfunded.
They were getting headlines every day and it was seen as a disaster area. In
fact, one of my board members said that the one thing the governor said when he
was appointed is that the governor didn’t want to see PERSI on the front pages
anymore. Basically, the Board just told me “just get us back in the pack. Be a reasonably
diversified, intelligently invested institutional fund.” And I said, ‘yeah, I
can do that.’ So, it was more a matter of just calming things down, getting
things on track because there has been so much change over in the portfolio.
MG: Can you describe the portfolio at that time?
BM: As you can imagine with the changes in portfolio
management, things were added in but never taken away from what was there
before. They also had never really recovered from the ‘87 crash. So even though
the allocation by policy could be 60-40 they
were still 50-50 equity and bonds. This was 1992. So, when I came in, I looked
at the funded status and we should have been 70-30 given the way the
liabilities were set. So, it went to 70-30 and I went through the portfolio and
took all the bets that had been made and went to the board and said, do you
really want them? For example, you have a small-cap tech debt fund. Do you
really want this? No. Throw it out. Then I’d say, hey, here's emerging markets.
Do you want it? Oh. You want this? We’ll keep emerging markets. And so, walking
through the portfolio, cleaning it up. Getting it on a basic institutional
basis, getting rid of all the weird plumbing that they had put in – brokerage rebates,
securities lending, all of the ‘80s relationship fees. Clean it up. And then
get to what became our mantra: “Simple, Transparent,
Focused and Patient” because it was very clear that this was Idaho. I wasn't
going to be able to get the staff I had at the Alaska Permanent Fund. It’s
going to be myself and another person at most. I needed to simplify it. Make it
clean and clear. Make it explainable, get it up to 70-30 equity fixed and move
forward. And it worked out.
MG: How long did it take you to clean up and get it
to a point where you felt like it was sort of yours?
BM: It was mine in the first couple of years because
with all that changeover, I had a clear running path to put in place the
structure we thought appropriate. They weren't going to fire me in a one- or
two-year period. I had that freedom in going to 70-30. After about a year and
half, I brought in an outside consultant to do a full review and say, ‘is there
anything we missed?’ Then by ’97/’98, we added real estate investment trusts private
equity, TIPs and global equity. We’ve basically been the same fund since then.
We looked at the stuff that came out in the early 2000s but we didn’t like it.
Portable alpha, hedge funds international infrastructure. All that good stuff. By
1998 everything was set up and we were ready to go.
MG: Sounds like you’ve been on cruise control for the
past 24 years or so?
BM: Kind of. Since then I have spent more time
looking at things we don't do rather than things we do. In other words, it was
like flying a plane. Most of the work is getting it up in the air and leveling
off. Then, it’s just checking the instruments and making sure that there wasn't
anything coming on the horizon that we should be doing and whether our simple,
transparent, focused and patient mantra needed to be changed.
MG: Did it?
BM: It turned out it didn’t.
MG: What was involved in adding private equity and
getting everyone comfortable with the asset class?
BM: I had a couple of board members who really loved
it and a number of board members who didn't. It was more a matter of explaining
and getting a consensus among the board as to what type of private equity
program we wanted. Clearly, we wanted some private equity that would take care
of local considerations because there's a lot of people that come up to you,
particularly when economic times are tough and say “can the pension fund
invest?” You’ve got to be able to say we'll take a look at it. So, you need a
robust private equity approach to be able to give due consideration to
reasonable requests and so we brought on board Hamilton Lane. I think we were
one of their first private equity clients. One of the things we said was that you have to
look at local opportunities. If someone comes up to you and it isn’t a fit,
feel free to say no. But give them a reason. Don’t just blow them off. And so
that was a lot of it. We would look at local partnerships that would come up
and our view was we won't take more than 50%. It's got to be good enough to
raise half of the money elsewhere. You've got a great ability to raise money on
your own and if someone comes to you with an opportunity look at them with a
smile on your face and tell them exactly what you're thinking. If you're saying
no, tell them exactly why. It was a learning experience for everybody. The
other condition for local partnerships was that they didn’t have to put a
single dollar in the state if the opportunity wasn’t good – just that they look
deeply at the opportunities available and help build the local private infrastructure.
The rest of the private equity (portfolio) are your standard names: KKR,
Apollo, TPG, etc..
MG: What percentage of the fund is in private equity?
BM: We’re around 8%.
MG: What is your view of private credit – a segment
getting a lot of attention these days?
BM: We have the largest local directly owned
commercial mortgage program in the state, a first lien commercial mortgage
program. We have a huge number of properties across the state that we directly
own and service. And so, we have exposure to private credit already. And we
have some private credit such as Apollo. But it’s bonds for God's sake. We’re
basically an old-fashioned fund that looks to the equity interests and knows
that we can handle multi-year volatility in equities to get where we want to
go. Our particular approach lasted from the late ‘90s through the Asian crisis
and Long-Term Credit. It lasted through the tech wreck. It lasted through the
Great Recession. It lasted through without hardly any commentary from the
constituency or the politicians. We have a constituency that has stuck with us
and has recognized that we’re going to make our returns – but it’s not to going
to happen each and every year. We’ve been fortunate in that.
MG: To that point, what does it take to be the CIO of
a public pension fund and deal with board members, politicians and, of course,
the public?
BM: If you find yourself trying to explain something
you are doing in plain English and you are stuttering, you don't know it as
well as you think you do. It's important to be able to have those you are
responsible to – the Board, the politicians, the constituency -to understand
what you're doing and why you're doing it. If you have at least a modicum of
respect with everybody, they'll give you a chance to start to explain when
something inevitably goes wrong – like the occasional market crash. And if you
can't really explain what you were trying to do, you've got problems. And so
that's a lot of it. The mantra here has always been to be simple, transparent,
focused and patient. If we can’t get back to those four principles, we should
think about whether we should try to do it. That goes back to Alaska. We were
building things worldwide, but you really had to be able to go back to those
first principles and try to explain to the various constituencies in relatively
straightforward English. Almost everybody I’ve met in both states are in public
service for a reason. They may have different viewpoints, but they are at least
willing to listen. They're there more out of curiosity and interest than power
and glory. That's been my experience.
MG: What led you into public service to begin with?
BM: I had been
going to law school at UC Davis and in my final year I got an opportunity to
clerk for the chief justice of the Alaska Supreme Court. So, we came up to
Juneau in 1975 and after a year of clerking, a job opened in the AG's office,
and we had decided to stay. Jane had got a good job and we liked Juneau. It was
a small town, and it was before Alaska received a lot of the oil money. So,
there was a lot of opportunity and we stayed, and I stayed in public service.
There were great opportunities and great things to do. Alaska back then was just a stunning place.
It was basically a third-world country with no communications anywhere. It had
only been a state for about 17 years. A lot of things were brand new back then.
It was a wonderful time, a wonderful place. But it's for a younger person. It'd
be tough to go back there again. It's the cold and the dark. It gets tougher as
you get older.
MG: How do you look at the current economic volatility?
BM: It has been a pretty well-behaved crisis. This
has not been one of those where your heart is in your throat every second,
which we’ve had before. And if you just
wait it out, things usually work out. But the worst time to make a move is in
the middle of a crisis.
When I first got here, this was seen as an absolute disaster
area. I mean, by the politicians, by the constituency, by the press. From the
period during the late ‘90s financial crisis, the tech wreck, there was
recognition that this was a relatively stable fund and that we weren’t going to
do anything stupid. I first recognized how lucky we were during the tech wreck.
I went to a finance committee meeting and a woman, a new woman legislator from
Rexburg, said, ‘When I go down to the post office, there are a lot of retirees
there and they’ve been talking a lot recently about PERSI”. So I’m thinking, ‘Oh
my god, here it comes – I’m going to be roasted alive.’ And she says, “they’re
just so happy you’re not losing more!’ We’ve been very fortunate with our
constituency – they have become very patient in crises.
MG: So, you seem to be saying in this environment that basically you
should not do anything.
BM: Well, you should have a long-term plan. The worst time to sit and
think and change it is in the middle of crisis. The world does revolve around you. Soon as you wash your car,
it rains. And as soon as you make a change to something new, it's not going to
work. This has been true through every single crisis. One of the worst pieces
of advice I ever heard came when I was advising the Alaska Permanent Fund and El-Erian
(then with PIMCo) came out and gave a speech and said don't rebalance. This was
like in late 2008 or January or February of 2009. Don't rebalance? It's the “new
normal”. Well, it was exactly the time to rebalance. There are a lot of people
that were saying don't “blindly” rebalance. Hell, that's exactly what
rebalancing is. Rebalance when you get to the edges but don’t do anything
stupid. With the current market crash in both equities and fixed income –
something we haven’t seen since 1994, we knew this sort of reaction would have
to occur sometime. Interest rates weren’t going to stay at zero forever. You
just didn't know when.
MG: What are you most proud of during your time at
Idaho
BM: Well, I'm proud of a lot of things. I'm proud of
the reputation we turned around. I'm
proud of a lot of the things we were able to do for the community because we've
helped a lot of a funds. We've helped a lot of institutional organizations and
the state endowments and foundations to give them a broader base. I'm proud of
the fact that we were able to do gain sharing in the early 2000s and get it
back to a well-respected, well-funded, stable status that people have pride in.
Now, whether it'll last, I don’t know. But at least they got a shot.
MG: Are you settling into retirement?
BM: I'm settling in quite well. Thank you.
MG: Any big plans now that you're retired?
BM: No, not really. I’m doing what I do best, which is basically
nothing. I’ve spent a lot of time with my spouse, so that's enjoyable. And then
there were a number of end of career-type functions in the first weeks. And we
have travelled a bit. So right now, it's not a bad lifestyle.
MG: You announced it 15 months ago, so you’ve had plenty of time to sort
of get ready – correct?
BM: I had
plenty of time to practice.
MG: Your deputy, Rochelle Sugiyama, was chosen as
your replacement. Have you had any contact with her?
BM: She’s doing fine. I've talked to her a couple of
times, but she’s pretty much been running the fund for a couple of years
anyway. So, it was an upgrade.
MG: Any regrets that you didn’t retire in a year when like 2021 when
PERSI had a 27.6% return, rather than this year when you had a loss of 9.5%?
BM: It’s investments, for gosh sakes. I mean, this
stuff comes along once every six to 10 years. You know where everybody kind of
goes into a fetal mode and waits for the rain to stop. My successor should
probably have taken over a year or a two ago because she’s better than I am. As
I said, it’s an upgrade. And waiting for that upgrade, I may have held on too
long by maybe a year. But I enjoyed the
job so much. It's tough to let go of something you love. You know it's very
rare to see an athlete who is proud of their work on the field to say” I'm
retiring”.
MG: You could pull a Tom Brady and unretire?
BM: I'd have
to give up my marriage, though, for that - I'm not willing to do that.
MG: In closing, what have you learned in your 30-some
odd years to be a good CIO?
BM: You must keep things explainable. Always look at what you're not doing and keep asking yourself why you're not doing it. That goes for what you're doing as well. What's tougher to do is look at what you're not doing and seeing whether you should be doing it. And consistency. I mean the fact of the matter is that across the institutional funds worldwide we do a lot of different things. I think the key to the ones that are successful over time is they stick with what they do even when it's not working. My view is that we kind of all make the same amount just at different times. The ones that tend to be in trouble are those that switch back and forth trying to catch the latest trend, kind of like our fund was before I got here. They kept changing their way and kept going into the things that recently worked just in time for them not to work. Also, those funds that never pay their contribution are uniformly in trouble. That's the other thing that really worked here is that our political system – whatever you may think about it in terms of the red versus blue - our legislature and our politicians have been heroes regarding the pension fund. They have always paid what they need to pay. They recognize there's no free lunch, they never panic when things are bad. We’ve been very, very fortunate that the constituency in the state has allowed us to keep a stable course. I think that's what I'm probably most proud of and enjoyed the most is the stability, and it looks like that will continue. (Richelle) will be able to do it easily.
