Colorado PERA’s McGarrity Reflects on Journey to Become CIO, and Facing the Spotlight and the Pandemic

By David G. Barry

Amy C. McGarrity
is in her fifth year as chief investment officer of the Public Employees’ Retirement Association of Colorado (PERA), which manages more than $76.8 billion in assets on behalf of nearly 650,000 members. McGarrity has spent the bulk of the past 12 years with PERA, having joined it in 2010 after the Denver Public Schools Retirement System – where she was CIO – merged with PERA. In an interview with Markets Group, Amy discussed her journey to become PERA’s CIO, the challenges of the past two years, and why adding chief operating officer to her responsibilities made sense.

Markets Group: Amy, let’s start with how you ended up in the financial world.

Amy C. McGarrity: When I was in high school, my dad encouraged me to participate in DECA (Distributive Education Clubs of America) and I was pretty successful at competing in a category called Finance and Credit. At the same time, I was pretty good at math. So, when I was thinking about what to do in college, my dad encouraged me to go into finance. Normally, I don't think when your parents encourage you to do something in college, that it works out. But for me, it did. Initially I was a piano performance major. I did that to pay for school. I had a full scholarship at the University of Wyoming for piano, but I knew I wanted to major in finance. So, I switched my major. Finance has always been something that I’ve loved and been interested in.

MG: Do you still play the piano?

ACM: I do still play. I taught both of my daughters to play, and neither of them play now, which is pretty funny. Of course, they don't. They had a bad teacher. But I do play, but it's not like riding a bike. I played for 13 years and was quite good at it. I'm not good at it anymore, so it can be very frustrating like anything in life that you're not great at. It's not like eating your vegetables, but it is a good release. In my teenage years, I would go play the piano to kind of just get in my own head and express myself. So, I do use it as a stress relief and just a way to do something fun for myself. I'm just not very good at it. There's not going to be any concerts anytime soon.

MG: Describe, if you would, your journey to becoming CIO.

ACM: That’s been an unexpected gift. Frankly, one can only characterize my career success as a lot of hard work, but a lot of luck along the way. I started out working in essentially the back office of a hedge fund. I went from Wyoming to New Jersey, and while working at a hedge fund, I started going to grad school at night part-time. Ultimately a few years later, I achieved my MBA and went into consulting, which was an interesting journey. I worked in the Princeton (N.J.) office of a consulting firm (Mercer), and then they closed that office. So, I transferred to the New York City office, which was an eye-opening experience for me. I think that really contributed to my ability to effectively communicate with a lot of different people. I mean, it's very different from growing up in Wyoming and I think it was a great experience for me. And just again a gift. I then transferred to the Denver office, and they closed that office, so I went Buck Consultants. That is where I was when I ultimately got the job at Denver Public Schools Retirement System (DPSRS) as an investment officer and then subsequently became their CIO.

MG: What led you to apply for that Denver Public Schools Retirement Job?

ACM: That was really through an encouragement of another consultant at Buck, who worked closely with DPSRS. He knew the people there and he just felt like I would be a good fit and that it would be a different side of the table (the plan sponsor side) for me. And it turns out he was right. It was a great experience. And then we were ultimately acquired by PERA in 2010, or we merged with PERA, which I guess is a more accurate way to describe it. And again, it was just incredible luck along the way. The legislation that merged DPSRS with Colorado PERA required PERA to maintain their employees. We were very nervous and there really wasn't an actual place for me because I was the CIO and they already had one of those. So, about six months into my stint, I was afforded an incredible opportunity to work with the equities team, which I still do as much as I can. It's my passion. I love investing. I then finished up my CFA charter there in 2011 and became the deputy CIO in 2013. In 2017, I became the CIO.

MG: So, it sounds like the merger between the DPSRS and PERA worked out OK for you?

ACM: Honestly, I was reluctant with the merger with PERA. I was nervous. I was satisfied with my role at DPSRS. But becoming an equities portfolio manager is an opportunity that I would never have thought would have been afforded to me in my wildest imagination. So, it's just been an incredible ride.

MG: Is there a lesson that sticks out from your career to date?

ACM: It’s been a journey. If I had advice for people, I would say accept risks, take chances and work really hard. I think nothing substitutes for hard work. I think it gets noticed. And then you maybe get opportunities – or luck as I call it – that wouldn't be afforded to you if you hadn't worked hard, if you hadn't shined or put your neck out there a little bit and taken some initiatives. So those are some of the things that I've learned along the way. I've also learned candidly as a full-time working parent that it is difficult to have it all. I grew up with my mom and dad saying you can have it all and I don't know that’s the case. I don't think it is. But I have spoken with another colleague, and she shared with me that “you can't have it all at once.” So maybe that's the case. I don't know. It's a balance because that hard work takes a lot of time. If you’re entertaining outside activities like a family or whatnot, it's sometimes difficult to find balance.

MG: What appealed to you about becoming CIO of PERA?

ACM: Number one, it's the team. It's an amazing team of people, not just in investments, but throughout the company. We have about 60 people in the investment department, and these are people who have worked at prior investment management firms outside of PERA. They have deep expertise. Again, I can learn from all of them. The collaboration and the mind share that goes that's been great. I also work for an executive director [Ron Baker], who has a vision of entrepreneurialism, which I think is unusual in the pension plan space. So just as Colorado PERA is unique in our investment management capabilities, I think we have the tone at the top that really drives innovation and a spirit of collaboration. And so, it's just an exciting place to be.

MG: What have you attempted to do/change while CIO at PERA? Markets Group has written about PERA’s “unitization project,” aimed at giving participants in your defined contribution plan broader, cheaper and – ideally – better-performing options, starting with fixed income.

ACM: During my time as CIO, we’ve increased our presence in the defined contribution space. We are working on this big unitization project. We revamped the compensation for the investment team back in 2019, which I think goes a long way towards attracting and retaining really high-caliber investment talent. So those are just a few of the things. But opportunities abound.

MG: Amy, what do count as accomplishments over the past five years and what are you still hoping to accomplish?

ACM: I'm proud of where we are. I think that we have come a long way despite the awkwardness of pivoting to a fully remote workforce during the heat of the pandemic. Now we're back together in a hybrid workforce, which I really do believe facilitates collaboration and long-term relationship building, especially as you bring on new people and they can then get into the culture a little bit better. This giant project of unitization and the increased management within the defined contribution space, those are big lifts for our team and I'm very proud of getting there. So, it's not just an overnight, this is what we're going to do. It takes years of planning, not necessarily years, maybe a year for that unitization project. But the idea didn't just come out of the blue. Then you have to message the idea, get buy in, etc. So, it's quite a process and I'm proud of it. I can't believe it's been five years, Candidly, it just has gone by so quickly.

MG: Finding and retaining personnel – especially on the investment side – has been a challenge for many public pension funds. Would PERA fall into this category as well?

ACM: On the investment side, we haven’t had a lot of turnover. However, we have seen some in our operations division. We have firms in [Denver] that we compete with for talent in all aspects of our business, but in particular, investment operations. There are firms in town that we sometimes trade employees with, which is unfortunate. So, there's other aspects of PERA that have experienced similar recruitment and retaining challenges just like everybody else out there. As a result, I think we've had to be a little bit more flexible and dynamic in our approach, whether that's allowing more flexibility for people to work from home or making sure we have a pulse on what the market is paying for people so that we remain competitive. Certainly, in some aspects of our business, we can't necessarily compete compensation-wise with the private sector, but we do have ancillary benefits, such as a nice defined benefit plan. We have great benefits and flexibility. There’s been an openness to evolve as the labor market has evolved. It's moving very quickly though so we'll try to keep an open mind with where things are and recognize specific areas where we're having challenges.

MG: What about on the flip side? What are the challenges you face as CIO?

ACM: Clearly, we have a funding issue (PERA ended 2021 with a funding status of 67.8%) and that is painful and now we've got these markets in 2022 that are not really kind. It's not dull.

MG: As a public pension CIO, you are in the spotlight. You’ve got pensioners who are concerned about how the fund is doing. You’ve got a board that is asking questions and you’ve got the media focused on your results. How have you learned to adjust to this environment? Did it come naturally or is it something that you are still figuring out?

ACM: It ebbs and flows. We are always looking for feedback and open to it, such as through critiques of our stewardship report. But it's not easy and no, I'm not used to it. I take a lot of it to heart and personally, and so it sometimes can be challenging. But it is part of the job and there are a lot of people who support what we do. Certainly, a lot of our retirees are pleased with the pension that they are receiving, and the way we are managing the administration of their pension benefit. I think as our company continues to try to improve our value proposition for all stakeholders, we're getting that feedback and trying to shape the business for the future so that we do continue to meet their needs, but that feedback is an important part of that process. Certainly, there's always going to be criticism of investments, whether it's “Why weren't you in 60/40 and why are you in these very opaque, expensive private assets or why are you not in Bitcoin?” You know, you just answer the questions to the best of your ability. And fortunately for us, the board’s philosophy is very long term and strategic.

MG: It can’t be easy to hear those questions – especially currently?

ACM: To the extent that one particular asset outperforms in any given period or underperforms in any given period, we have a very sound institutional quality story to tell. But yes, when markets are highly correlated and going down, we're going to be in that market. We're experiencing that and there will definitely be criticism. And so, you just answer the questions and be as transparent as you can be and maintain that long-term focus. You also try to really share that vision of the long-term nature of this perpetual entity and the value to these 640,000 members and beneficiaries across the state of Colorado – actually, across the world.

MG: A hot button issue for institutional investors these days is oil and gas – many are facing calls from activists to divest. How are you/PERA handling this issue?

ACM: It's a topic that comes up very frequently. At almost every board meeting there is someone who's making a public comment about divesting from fossil fuels or other aspects. And so, you know, we engage with these stakeholders. We have had one-on-one calls with them. We have had meetings, group meetings with them and we will continue to do so and try to explain our position – the board's philosophy on divestment. We would like to afford our investors the broadest possible universe from which to generate the returns necessary to support this long-term entity. And so, in addition to those engagements which are not infrequent, we engage with legislators. There is a variety of legislation that's introduced almost every year, whether it's required reporting on the emissions or CO2 emissions within our portfolio. It could be actual divestments. We've seen a couple of those bills introduced over the years of fossil fuels and we will generally meet with those legislators, explain our position, explain the board's position, point them to our stewardship report and then see what happens. That’s the philosophy of the board and I think it's a sound one to focus on that fiduciary responsibility.

MG: Earlier this year, you also were given the additional title of chief operating officer. Can you provide some color on that?

ACM: In that role, I oversee the benefits side of the house as well as the administration side. So, a lot of the company and the idea behind that dual role essentially was to try to get the company to collaborate even more. Over the years, the company has really upped its game in each of its divisions. And I don't want to over-characterize it, but there was an opportunity to leverage that collaboration across the benefits in the administrative departments. Because I’ve been at PERA for a long time now, I have a lot of institutional depth and relationships across the company, and I think that the idea was to assist those large departments in really increasing the collaboration across the company and really drive the company forward. We are, for instance, working on rolling out an app for our members, which I think will really modernize our operations and help meet our customers where they are, which is, of course, what everyone wants to do. Again, I think other pension plans may be considering this as well, but I think we're one of the first movers on it. It's kind of a big lift organizationally. We're not a tech company, but I think that it’s kind of cool. I love those types of projects. I love Colorado PERA. And I share Ron’s [Baker’s] vision of really moving the company forward. I think that's why he put me in this role – to sort of facilitate that shift. And I think there's a demand to do it faster than ever. We're not competing with the Utah Retirement System, we're competing with the likes of large financial institutions, and we don't have quite the same budget they do. So, we've got to be creative.

MG: Amy, describe the ups and downs you’ve experienced over the past two years as CIO of a public pension plan and what you think might happen going forward?

ACM:  Well, the last two years have been challenging – not only professionally, but personally. I think some of us may have experienced isolation and loneliness through this pandemic given that our coworkers weren't around. Frankly, I'm a functioning introvert, and it really impacted me being so isolated. I was going into the office, but I was the only one on my floor, so it wasn't exactly like I was rubbing elbows with my investor friends. So, it was challenging, and I think it's also challenging to maintain those touch points with your team. For me, it was that there wasn’t an ability to just run into someone and have that water cooler conversation, which is so critical to developing those relationships. I had to be really intentional about random calls to my team who may have thought, “uh, why is Amy calling me?” That can be uncomfortable, right? But I don't really want to schedule an informal interaction. That kind of defeats the purpose, but I think we're all dealing with the same things, candidly, and I mean, it was incredible how the market just really rebounded in 2020. I think it really speaks to long-term strategic approach. The returns in the markets over the last two years have been incredible. I frankly think we've pulled returns forward a bit and so I’m not surprised that the market is where it is. I guess I am surprised at the magnitude of inflation. I didn't think it was transitory. I sort of felt like it was going to be longer lasting, but these are big numbers we're seeing and that's going to be very uncomfortable for the retirees and their fixed cost-of-living adjustments or their fixed annual increases. I think that's the challenge for our company and frankly, for legislators and stakeholders. They're hearing from their retirees. It's a very large group of people in the state of Colorado. But that's not up to the PERA board. That is a legislative change and given our funded status, I don't know how that would work. But as it relates to the last two years, I think it proves how resilient our teams are and how we are as people. I think we're still coming out of it as a society. I think there's been some significant change over the last two years – like the change in the labor force and the ideas of work, life balance and working from home, I mean, I couldn't have imagined it two years ago. We didn't even have any work from home at Colorado PERA, and now we have two days out of the office, three days in the office. It's interesting how it's evolved.

MG: Do you have a view of what the economy holds for the market and for PERA?

ACM: What do I think about 2023 and the rest of 2022? I really have no idea as it relates to the markets. Certainly, in my management of the underlying portfolios, the smaller global portfolios that I co-manage, I have views of the market and you know we've positioned those portfolios to reflect those views. They're also very long term though because of our long-term approach. We're not looking to change the portfolio composition at least at the total fund level. Underlying portfolios may be making moves to reflect increases in inflation expectations, higher discount rates, etc. The equity portfolio is getting hurt given what happens to long-duration assets when interest rates rise. But we're not changing our philosophy. That's how you get whipsawed as an investor. And that's not what we do best. We don't time markets. We're here for the long term.