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Seth Kelly Resigns, MOSERS to Launch Search for New CIO

Seth Kelly departed the $11.6 billion pension after replacing 21-year CIO Rick Dahl in 2016.
By Steffan Navedo-Perez

Seth Kelly, the chief investment officer of the $11.6 billion Missouri State Employees’ Retirement System (MOSERS), resigned from his position on December 3, a spokesperson confirmed with CIO.

Shannon Davidson, deputy chief investment officer, will serve as interim CIO, and the system will launch its search for a new CIO in January, the spokesperson added. The retirement system did not divulge the reason behind Kelly’s departure.

Kelly was deputy CIO prior to the departure of Rick Dahl, who resigned in 2016 after serving for 21 years as CIO at the pension. Under Kelly’s stewardship, the portfolio underwent a significant modernization “to address the challenging return environment,” Kelly wrote in the latest annual report. He shepherded the strategic asset allocation to one inclusive of more growth-oriented investments, as well as real assets (both public and private), hedge funds, and private credit.

Kelly also put a strong emphasis on cutting overall fees, and reduced the fees the portfolio pays by $54 million in fiscal year 2019. Over the past three years, Kelly helped MOSERS reduce its annual management fee costs by $24 million, primarily from the decrease of partnerships with “high fee” situations like hedge funds and private equity partnerships.

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Missouri State Treasurer Eric Schmitt issued a warning in 2017 that the state was in an “alarming” scenario given the downward spiraling funding ratio, and strongly suggested the fund significantly reduce its “expensive investment fees,” which Kelly has done.

The MOSERS portfolio generated a 1.8% outperformance in fiscal year 2019, returning 4.3% compared to the 2.5% benchmark.

“I appreciate the opportunity to serve as the chief investment officer at MOSERS. I am a lifelong resident of central Missouri and have personal relationships with many MOSERS beneficiaries,” Kelly said in the retirement system’s latest annual report. “Those relationships allow me to witness the great things that pension plans, like MOSERS, provide to Missouri state employees in retirement. Those relationships also motivate my everyday behavior to produce results that make the future benefits of the retirees secure.”

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Home > News > Asset Allocation > Look Out, Volatility May Be Making a Comeback
Asset Allocation

Look Out, Volatility May Be Making a Comeback

Why? The era of low VIX readings has lasted longer than normal, and there’s the unending trade war.

By Larry Light

Volatility, that hobgoblin of a churning market, appears to be nudging back up. Rising to 15.7 from a low, low 11.5 in late November, the CBOE Volatility Index (VIX) may well be headed into 20-plus territory.

There’s plenty to make the VIX, known as the fear gauge, ascend. While prognosticators are doubtful about a 2020 recession, the December 15 deadline for a big tariff hike is looming. Sure, that may well be postponed, yet the trade war shows no signs of permanently easing. These days, any twitch of bad news on trade causes a quick market retreat. Imagine what a total breakdown in talks would bring.

The present reading is hardly the recent high point for the VIX. In August, amid a late-summer market downdraft linked to recession fears and trade war jitters, it shot up to 24.5. The same things happened 12 months ago, during another and much steeper market rout—the index soared to 30.4. But both cases were spikes, and the VIX quickly subsided again. In fact, the current reading is around the average for the volatility measure.

The spikes are important, though, because they likely portend a turning of the volatility cycle, argued Shawn Gibson, CIO of advisory firm Liquid Strategies and a VIX expert. A volatility cycle tends to last five years, he said, and the current one has been around a lot longer, eight years. Before that was a spell of high VIX readings that the financial crisis and its fearful aftermath drove.

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In other words, we’re overdue now for a turn.  “The volatility increase in 2018 was an inflection point,” Gibson said. “We’re in the early innings of high volatility.”

One can argue that the 2018 spike was partly provoked by the Federal Reserve’s policy to keep raising interest rates, which would put pressure on corporate borrowing, hence on earnings and stock prices. That policy since has been reversed, but the three recent Fed rate decreases may have just postponed the coming volatility surge.

Nevertheless, Gibson doubted that higher volatility necessarily augurs that the market is going to go down. “When the market is up, it can be a much bumpier ride,” amid high volatility, he noted, adding that such a passage also means “there will be some scars.”

One thing more volatility promises is better days for hedge funds, which thrive on choppy markets. For them, serenity is not a money maker, as so many of their blah returns in recent times have shown.

A return to volatility, to mangle that ancient Chinese curse, will make us live in interesting times.

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