So, You Want to Be a CIO….?

By David G. Barry

“What have I gotten myself into?”

Few would fault Nicole Musicco or Rich Hall if they are asking themselves that question – especially after the presentations that the two recently made.

Musicco, who became chief investment officer of the California Public Employees’ Retirement System (CalPERS) in late March, told the plan’s investment committee that the pension system’s assets under management have dropped by 10% since the end of the year, falling from $500 billion to $450 billion in early June.

Hall, who took over as CIO of The University of Texas/Texas A&M Investment Management Company (UTIMCO) in December told his board that a bear market could result in the system losing as much as $19 billion – or an amount roughly equal to what it generated in gains over the past three years.

CIOs that were in their posts in mid-2021 or prior have had tremendous results.

“This is totally anecdotal but what we haven’t seen with our clients is panic,” said Jay Kloepfer, an executive vice president with Callan and co-head of the consulting firm’s Capital Markets Research Group. “And part of that may be that they just enjoyed the best calendar or fiscal year they’ve ever had. And that was on top of what was essentially the best three years anyone’s had. So many of these funds enjoyed a tremendous improvement in their financial condition that they had to know they had to know (the markets would) come back down to earth.”

The timing, however, is unfortunate for individuals who have become first-time CIOs within the past year. They’ve started their new jobs and been faced with a volatile market, brought about by inflation, a war in Ukraine, energy and food shortages, and sliding stock and bond markets.

The list of newbie CIOs includes Yale University’s Matthew Mendelsohn, who was elevated in August to replace the late and legendary David Swenson; Kristi Craig, who in February joined the National Geographic Society after being director of private investments at Georgetown University; Jeffer Choudhry, who in February was brought aboard at the University of Pittsburgh after being head of investments for Carnegie Mellon University; Shoaib Khan, who was elevated to permanent CIO of New Jersey’s Division of Investments in May; and Alison Romano, who this month joined the San Francisco City & County Employees Retirement System after being deputy CIO of the Florida State Board of Administration.

Musicco and Hall are clearly two of the biggest names on that list by virtue of the size of the pension funds they’ve been entrusted to guide.


Musicco arrived from RedBird Capital Partners, where she led the firm’s Canadian investment business. Previously, she managed the private markets investment program at the Investment Management Corporation of Ontario. Her experience also includes 16 years with the Ontario Teachers’ Pension Plan, where she led both the private equity and public equity investment teams.

In her remarks to the investment committee, she described the current environment as a “once-in-a-generation change,” resulting from geopolitics and the tremendous volatility in the market.
Calling it a “brutal year for stocks and treasuries,” Musicco said the focus for CalPERS is “how do we build innovation and resiliency into our portfolio during these very volatile times?”

A key element to dealing with the volatility, she said, is CalPERS’ new strategic asset allocation, which was approved in November. That strategy increased the plan’s private equity allocation to 13% from 8%, added a private debt allocation of 5% and also added 5% leverage to its investment portfolio in order to increase diversification.

One positive for Musicco and CalPERS is that over the past five years, the plan’s funded status has increased to 80% from 60%.

During her first 75-plus days as CIO, Musicco embarked on a listening tour, concentrating on the program’s’ four “Ps”: portfolio, process, performance and people. She said that she wants to have “greater accountability” over performance and risk management.

“We want to manage risk and take advantage of opportunities,” she said.

A key issue for Musicco, Hall and other CIOs – new or longstanding – is how severe the bear market will be.  A bear market takes place when stocks drop 20% from their high. The S&P 500 Index briefly entered bear territory in May and then again in June.

Hall, who took over for Britt Harris after serving as UTIMCO’s deputy CIO for three years, laid out a series of scenarios to the UTIMCO board.

UTIMCO, which as of March 31 managed $67.8 billion, estimates that the endowment beta is 0.65 to public equity and that the next recession/bear market will be accompanied by a 24-month drawdown – the average length of a bear market.

And so, if it’s “light,” global equities would fall by 25% while the endowment would decline by 16%, or $9 billion. If it’s “normal,” global equities would decline by 35% and the endowment would go down by 23% or $12.9 billion. A “severe” decline would result in global equities falling by 55% and the endowment by 36%, or $19 billion.

Hall did not reply to attempts by Markets Group for further comment on his presentation.
UTIMCO, according to data presented by Hall, has over the past three years seen its AUM rise from $45.3 billion to $67.8 billion, with $18.9 billion of the gains coming from net investment income. During that period, UTIMCO also has received $9.9 billion in contributions and distributed $6.3 billion.

During the first three months of 2022, UTIMCO lost $1.5 billion in net investment income, received $1 billion in contributions and distributed $900 million.


In his presentation, Hall described the current environment as “dancing on the edge of a bear market,” especially given that markets are “meaningfully” off from peak levels. This includes the Nasdaq Composite, which is down more than 25%.

UTIMCO last year – prior to Hall becoming CIO – came out and said the “40-year mega era” was ending – given that at the time, the discount rate was zero and the S&P 500 price to earnings was 21 times.
In his presentation, Hall indicated that the markets are feeling the impact of inflation, rising interest rates and slowing GDP growth.

He did, however, point out one positive: namely that when bear markets end expansion generally takes hold. The Great Financial Crisis, for instance, resulted in a 57% decline in stocks in October 2007 but was followed by a bear market that started in March 2009, lasted for 156 months and produced a 40% return.

Hall, Musicco and the other new CIOs will hope that history will repeat itself.