By Muskan Arora
CIO Patrick Fleming looks to hedge fund
managers Stanley Druckenmiller and Bruce Kovner to adopt the KISS principle (keep
it simple stupid) when it comes to running the $30.4bn Wyoming State
Treasurer’s Office.
KISS has proven useful in avoiding costs
like those associated with unwinding complex trades.
To keep on top of trends, the CIO accesses
the relationship between long-term government bond yields and the country’s
economic growth.
This strategy has been working well for Fleming to grow both the team and the size of the portfolio.
Retiring in June 2025, it has been ten years since Fleming joined the ‘one man shop’ and grew the portfolio from $19bn to $30bn with 10 investment professionals.
The Wyoming State Treasurer’s Office, who managed one-third of the portfolio internally, has returned 13.6%, 4.6% and 6.1% respectively for its 1-,3- and 5-year return against a benchmark of 13.2%, 3.6% and 5.4%, as of fiscal year ending September 30.
Since Fleming’s tenure began, the system has
seen a rise of 200 basis points over the last six years ending with fiscal year
2024. This means that the fund has earned $450m in revenue over the benchmark.
Preparing ahead of time, the CIO has begun
scouting for a head-hunter who would help him get the system’s next CIO, by
spring of next year.
Ideally starting on July 1, the new CIO
should have “10-plus years of experience of managing $500 million or more for
various asset classes alongside managing funds internally,” said Fleming, as “just
managing managers” is not something he is looking for.
Within its portfolio, the system has the
largest exposure to fixed income at 40%, which returned 5.03% as of September
2024 – with PIMCO as the highest allocation.
Under Fleming’s leadership, the Treasurer’s
Office has instituted a volatility-based risk measurement system while moving
away from traditional equity/bond approaches.
“Our bet is that with valuations this high,
it is unlikely that we will see significant further spread tightening with
highly levered stocks with negative cash flow rallying significantly from
here,” said Fleming.
In the coming months, the CIO is hoping for
the volatility to increase and has identified the long end of the US treasury
curve to be problematic owing to the system’s debt levels.
“The debt payment levels that have already
surpassed our military or defense budget will become more and more problematic,”
the CIO told Markets Group in an exclusive interview.
“Those are the issues that we see under any
presidential candidate; that volatility will increase under either one, or
volatility should increase under either candidate from the very low 12% to 13%,”
added the CIO.
The system is positioning its portfolio towards
the best risk-adjusted advantage (from both the perspective of the portfolio
and the revenue stream) and thus has reduced exposure to riskier bank loans and
has been moving up the credit spectrum.
Fleming brings a strong background in
riskier asset classes as prior to joining the system he was the CEO at Barclays
Investments alongside running his own hedge fund.
Due to a lack of internal due diligence
process for hedge fund managers, the system has collaborated with Grosvenor
Capital Management to manage one third of its hedge fund allocations while two
thirds are managed by the internal team.
In the current high valuation environment,
the CIO believes that, across the board, including equity valuations, investment
grade spreads and bank loans are tight, and “is a tremendous risk on rally.”
The hedge fund portfolio returned 2.24%
against a benchmark of 2.02%, as of September 30. The system allocates 4.38% of
the total portfolio to its hedge fund sleeve.
Within its hedge fund allocation, Concordia
takes the most space at 10% of the hedge fund portfolio, as “they're taking
advantage of the basis differential globally.”
To avoid the challenges of incorporating a
complex AI structure into the investment process, the CIO relies on large money
managers to use AI.
“What we're doing is using it much more in
the generative AI and some of the different types of use,” said the CIO.
The Wyoming State Treasurer is eyeing AI
investments within call centers, both within the US and globally, and says, “it's
not necessarily the first trade, but it could be the second or third iteration
that we will move to take advantage of.”
Fleming earned a bachelor’s degree in
economics from Harvard University.
