Michigan State Endowment Begins Building Investment Team

Michigan State University’s (MSU) inaugural CIO has made his first senior hires, the university confirmed Tuesday.

Phil Zecher, who was appointed the $2.2 billion endowment’s first CIO in December, has announced the hiring of two investment directors: Julia Lee and Allen Huang.

Lee joins the fledgling investment office from the South Carolina Retirement System, where she focused on private equity and co-investments. Previously, she was a portfolio manager and convertible bonds trader for insurance company Allstate’s investment division.

Huang, meanwhile, was previously director of fixed income at the Indiana Public Retirement System, where he managed $11 billion in fixed income portfolios for system’s defined benefit and defined contribution plans. Huang’s responsibilities had included asset allocation, manager selection and evaluation, investment guideline and contract negotiation, and portfolio monitoring.

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Huang’s prior roles include positions at Barclays and GE Capital.

“We are very pleased to have Allen and Julia join the MSU team,” Zecher said. “Each has significant experience both as allocators and on the direct investing side, which was important to me.”

Before Zecher’s appointment at the end of last year, the MSU endowment had been run by the university’s board of trustees and vice president of finance, along with outsourced-CIO and consultant Cambridge Associates.

Zecher, an MSU alum, had previously served on the MSU Foundation’s board of directors and board of trustees’ investment advisory subcommittee.

“The endowment has grown significantly over the last decade and so has the complexity of managing the investments,” Zecher said upon his appointment last December. “Having a CIO role will allow us to grow our internal talent and capabilities to identify investment opportunities that we might not have seen in the past.”

Corporate pensions for the largest companies in the UK face doubling costs in the next three years, according to consultant firm JLT Employee Benefits.

Current annual costs for FTSE 100 company pension funds are roughly £7 billion ($9 billion), JLT said, but this could double to £14 billion by 2019 as plan sponsors struggle to fill widening deficits.

The total deficit for FTSE 100 pensions was estimated at £87 billion at the end of March this year, the consultant said. In addition, 16 companies disclosed liabilities of more than £10 billion.

Costs to employers have already doubled during the last three-year actuarial valuation cycle, from 26% of total employment costs to 52%, JLT said. “Companies that are due to have an actuarial valuation in 2016-17 are particularly at risk of facing demands in the near future for increased contributions to cover higher employee service costs and higher deficits,” the consultant added.

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These spiralling costs are likely to lead to defined benefit (DB) funds closing to all employees if not addressed, JLT said.

Charles Cowling, director at JLT Employee Benefits, said it was “difficult to conceive” that higher costs would not lead to “drastic action… particularly as large pension deficits can have a detrimental impact on the company’s financial health and, therefore, its share price and dividend payments.”

“If a company is in a really bad shape, a large pension deficit could tip it into insolvency,” Cowling added. “We therefore expect employers to be reviewing any remaining ongoing DB pension provision and monitoring their DB pension deficits very closely.”

UK funds have been hit hard by the fallout from the EU referendum in June. Plummeting government bond yields and the Bank of England’s decision to cut the base interest rate to 0.25% have pushed up liabilities and sent aggregate deficits to record levels.