Kevin Leonard

Name: Kevin Leonard
Title: Partner and head of public fund consulting practice
Firm: NEPC
Assets under advisement: $1.1 trillion
Number of consultants: 72
Type of clients: Public pensions, corporations, endowments, foundations, high-net worth individuals, unions/multi-employer

As head of the public fund consulting practice at the investment consulting firm NEPC, Kevin Leonard works with his clients in all asset classes, including alternative investments. But, lately, thanks to the current low-return environment, he’s especially focused on a couple of pressing issues.

One is the matter of lower actuarial return assumptions. “We’re determining if a client’s current portfolio is supportive of the assumed rate of return, and creating strategies to achieve that,” Leonard says. The other is income production. That’s because, in today’s lower-yield world, many mature public pension funds are experiencing negative cash flows. “With fixed income return as low as it’s been and yield as low as it’s been, there’s more money going out than coming in,” he says. “Yield and income have become very important.” So, he’s been working with clients to create additional income-producing strategies to mitigate the problem of dwindling resources.

Building Recession-Proof Strategies
To that end, in some cases, he’s been focusing on building out private debt portfolios, thanks to their high–single-digit to low–double-digit rates of return and steady quarterly distributions, and opportunistic credit. For example, he’s advised some clients to increase their allocation to private markets, keeping their high-return private equity investments and funding private debt by decreasing the amount of conventional fixed income. “We’re looking at that as a replacement for traditional fixed income,” Leonard says. He started with the US direct lending market and now is eyeing opportunities in Europe.

Leonard attributes today’s stomach-churning market volatility, a frequent topic of discussion with chief investment officers these days, to mostly unpredictable macroeconomic forces. “It makes the CIO’s job more difficult,” he says. “This is a tough time for CIOs.” He also suggests the topsy-turvy environment calls for a deeper-than-usual focus on the short-term. “While we always believe in the long-term view, the short-term is more relevant than it’s been for a long time,” he says. “We’re saying to clients more than we have before that you have to be aware of what’s transpiring in the short-term.”  With that in mind, he and his CIO clients frequently evaluate their portfolios, pinpointing risks and opportunities, where there’s potential trouble and where, “it’s more a matter of noise,” he says.

He’s also building into portfolios protection against recession risk. That involves rebuilding safe haven investments like investment–grade core bonds or TIFS.  Not that he predicts an imminent fall; he wants clients to be ready whenever a downturn hits. “We’re closer to the end of the cycle than the beginning or middle,” he says. “And given the amount of volatility and political unrest out there, things could turn really quickly—and you have to be ready for that.”

By Anne Field