(September 27, 2013) – If Chicago’s public teacher pension plan were a hedge fund, it would be in the vein of Third Point or Perishing Square.

Where Dan Loeb and Bill Ackman strong-arm corporations as activist investors, Chicago Teachers’ leans on school systems as an activist creditor. For some public retirement funds, employer contributions roll in as promised, in full, and on time. For other pension plans, inflows require a bit of shaking loose.  

Carmen Heredia-Lopez, CIO of Chicago Teachers’, is happy to leave the pursuit of payments to her boss and focus instead on the pursuit of returns. (Unfortunately, the fund isn’t rewarded for credit risk on contributions—many of its debtors would be distinctly high-yield.)

“My focus as a fiduciary is to seek the highest returns on a risk adjusted basis—and I try to not get involved with the political part,” she tells aiCIO. “I focus on investments—that’s where my passion is.”

But in creating an investment program and undertaking an asset liability study, the contributions factor is impossible to ignore. How can a CIO set a risk budget without knowing their actual budget?

When Heredia-Lopez and the fund’s consultants look at the entire plan, she says, “the most pressing question is, ‘Are we going to get the contributions?' We see that as the biggest risk. It’s the biggest risk to the long-term stability of our plan. If we don’t get the contributions as detailed, it limits our ability to invest in illiquid assets."

Heredia-Lopez is closing in on a year at the helm of Chicago Teachers’ $9.7 billion portfolio. Prior to taking over the CIO office in January, she spent two-and-a-half years as the fund’s director of investments. Her tenure as an asset owner began in 2006 at the Illinois Retirement Fund, although she arrived with more than a decade of private-sector finance experience and an MBA.

That background in asset management serves her well as CIO; she credits years spent batting for the other team with giving her insight into the service side playbook. “For example, every consultant now will tell you they have an open door policy, that they take every call and every manager meeting they’re offered,” Heredia-Lopez says. “I know for a fact that’s not true—because I was a manager.” 

Diversify.

The institutional asset owner community has plenty of strengths. It is by and large a grounded set, one generous with ideas and equipped with a sense of purpose and a long-term perspective. 

Yet for all these lovely qualities, the group has its shortcomings. Specifically, it’s short on women. And minorities. Imagine aiCIO’s 2012 Power 100 list of influential CIOs as a portfolio. It’s 89% allocated to male assets, with only 11% exposure to women. If those weightings were asset classes or risk factors, every CIO on the list would implore the same thing: Diversify!

For years, Heredia-Lopez has been helping to make that easier for other CIOs. Through mentoring, speaking at events, and involvement with the Robert Toigo Foundation, she’s spreading the world about institutional investment to communities that aren’t currently well represented in its ranks.

Not only does this provide solid job opportunities to groups which may not have previously accessed them, it also hugely expands asset owners’ talent pool.

Heredia-Lopez is an alumnus of the Toigo Foundation, which supported her pursuit of an MBA in finance and accounting at the University of Chicago’s Booth School of Business.

"As women, we always question our quantitative ability,” she says. “'Should I be here? What am I doing here?' But I'm not afraid of math: I can do it. And foundations like Toigo give you that confidence."

And Heredia-Lopez’s team might be another organization in the same mold.

The Chicago Teachers’ Pension Fund may be the only public fund in the US with an all-female investment staff—or if there’s another, it’s news to the CIO.