The Private Equity Challenge
As chief investment officer of the Washington State Investment Board since 2001, Gary Bruebaker has developed a long-term record of investment returns that regularly beat other US public pension plans.
Recent performance has been particularly strong. For the 12-month fiscal year ending June 30, Washington State saw a 10.04% return net of fees. This beat the investment board’s own custom benchmark of 9.67% and the Wilshire Trust Universal Comparison Service median rate of return of 8.49% for US pension plans with at least $1 billion in assets under management.
CIO: How has Washington State been able to produce solid returns and beat peers year after year?
Bruebaker: I believe Washington State Investment Board’s solid investment returns are a result of a long history of being a valuable investment partner, having a disciplined and supportive board, and a focused staff. We identify where we may have a strategic competitive advance in the marketplace (e.g., private markets, complex strategies) and we leverage those opportunities while avoiding opportunities where we have no such advantage (e.g., hedge funds).
CIO: What does the pension system need to do to maintain top-notch returns in the future?
Bruebaker: Maintaining strong returns going forward will require that we continue to pursue highly skilled staff, excellence in board governance, alignment of investment policies and practices with investment beliefs, and effective utilization of best-in-class investment partners.
CIO: Your pension plan has been a leader in private equity. In an environment where funds are oversubscribed, how do you maintain your allocation level?
Bruebaker: Maintaining our 23% allocation to private equity is a challenge. We are currently at 21%. Our private equity program continues to grow successfully, so we have record-breaking distributions from our general partners which need to be redeployed to maintain our allocation. However, this is a nice problem to have. Our advantages in this space include having a strong and established reputation with the general partners, a demonstrated track record of being a valuable and reliable investment partner, and a professional staff with deep relationships in the field. For example, we have been allocated commitments in funds when we are investing with a GP for the first time, even when the GP was over-subscribed and is willing to cut back or limit existing investors’ commitments to make room.
CIO: Given a potential equity market downturn, how are you mitigating the potential risk?
Bruebaker: As you know, the WSIB is a very disciplined long-term investor managing over $130 billion. We do not attempt to time equity markets. Having said that, we believe our large allocation of 48% to private markets gives us an advantage in managing volatility. Additionally, our global equity program has been designed and built to have slightly less volatility through the use of such things as fundamental index investment strategies.