Letters to the Editor: October Issue | Chief Investment Officer

On “Anatomy of a Questionable Scandal: NJ Pension Accused of Pay-to-Play” (9/17/2014, by Managing Editor Leanna Orr):

Dear Ms. Orr,

On Sept. 17, 2014, Chief Investment Officer reported on a complaint to the New Jersey State Ethics Commission filed by the New Jersey State AFL-CIO regarding pay-to-play violations involving the state’s public pension funds. We asked for the investigation on behalf of the tens of thousands of government workers and retirees whose retirement security depends on an investment portfolio that is free of political influence.

The crux of the union’s request to the ethics commission, in fact, the entire basis of the complaint—whether investment decisions made during the Christie administration conflicted with political donations, in violation of state laws—is void in your reporting.

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You state in the article that “unlike the Bridgegate scandal, no factual evidence has indicated that politics play a role in the pension’s operation. That is, except as a distraction.”

Unfortunately, the article fails to acknowledge the law—specifically, the breadth of New Jersey’s ethics code regarding the restriction of political donations by investment professionals. The law prevents contracts from being preserved “if, within the two years prior to such engagement or during the term of such engagement, any political contribution or payment to a political party covered by this policy has been made” (NJAC 17:16-4.3 Restrictions). The law covers donations by “the investment management firm or any investment management professional associated with such investment.”

The investments specified in the complaint fall under that law. Don’t take our word for it—ask your attorney.

—Charles Wowkanech, President, New Jersey State AFL-CIO

On the celebration of CIO reaching its fifth anniversary:

Dear Kip and Team,

Congratulations on a spectacular launch of a new magazine in a very tough environment. Further congratulations in carving out a big space in a short period of time and building great credibility with a large (tough) audience. I have been lucky to contribute on a host of topics, as have many of my friends in the business. You have helped all of us expand our networks, while you’ve been building your own. You are not afraid to ask the tough questions and write about the issues with clarity, demonstrating great insight (for someone who hasn’t grown up in this business). And you (and your team) are a LOT of fun! All the best in taking this venture to new heights,

—Carol McFate, CIO, Xerox Corporation

Dear Kip,

Happy Birthday, CIO! Making the world safe for capitalism is not easy, but you and your merry band of Canucks (and honorary Canucks) make it look easy, occupying the practical, helpful space between the way, way too commercial and too, too academic. And your conference photo captions rival New Yorker cartoons for top spot among funny stuff. Well, not really—but good try. So who says investment journalism can’t be fun? Thanks for all you do, and here’s to another great five years!

—Eric Wetlaufer, Head of Public Markets, Canada Pension Plan Investment Board

***

Send your applause and/or abuse for any of CIO‘s content to lorr@assetinternational.com. We’re tough.

If there is a most powerful asset owner (in our view, Canada Pension Plan Investment Board’s Mark Wiseman, up three spots from 2013), there must be a least powerful one. To discern how she or, more likely, he would act, all you have to do is look at what the best CIOs do—and imagine the opposite.

Take, for example, Texas Teachers’ Britt Harris’ (#4, up two spots from 2013) differentiating philosophy: “We believe that we are only slightly unique in four important ways—but each is significant and gives us a viable competitive advantage over most others,” he told me in 2013. “We are large, long term, liquid, and not levered.” The result was a focus on arrangements (such as its much-covered strategic partnerships) that maximized these advantages.

The world’s least powerful asset owner would do the opposite: He’d focus on the short term and his disadvantages, and his only investment horizon would be his next board meeting.

Or take, for example, the wisdom of Roland Lescure (#19, up six) of Quebec’s Caisse des dépôt. “We want to move, aggressively, away from indices,” he told me last year. “The answer 20 years ago was diversification. In a globalized world, diversification doesn’t work anymore. What we need is actually to be a bigger shareholder of fewer companies. We need to be more discerning and have more concentrated portfolios. And when you’re big like us, that means you have to take big positions.”

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The world’s least powerful asset owner would do the opposite: His fund would stick to average allocations and practices, following the crowd wherever it went—even if that meant off a cliff.

Then there is Jagdeep Bachher (#38, up 40 spots), formerly of the Alberta Investment Management Corporation. “There’s incredible opportunity for outperformance in the US through cost efficiency alone,” he told Chief Investment Officer (CIO) in 2013. “The Canadians set a basis, now we have a chance to leapfrog it.” This past year, Bachher took his own advice: He entered the American fray at the University of California Board of Regents, intent on challenging himself and his new institution to be among the world’s elite asset owners.

The world’s least powerful asset owner would do the opposite: Career-wise, he’d stay comfortable—and mediocre.

Or you could just take the words of Wiseman himself: “We do think there is a lot to learn from our global peers,” he told CIO in 2012, the last year he sat in the Power 100 pole position. “We spend a lot of time talking to other public pension plans and sovereign funds because they are similarly placed. We’re looking to learn best practices in terms of asset management, allocation, risk management, and general internal processes.”

The world’s least powerful asset owner would do the opposite: He’d refuse to learn from others—scared of change, comparison, and not being the smartest person in the room.

So who is the world’s least powerful asset owner? You have the blueprint. Give me a name. You know where to reach me.

—Kip McDaniel, Editor-in-Chief