“Ben is intelligent, thoughtful, and has a deep intellectual curiosity for understanding private companies. Each of these traits serve Ben well in his role to search for the very best private equity partnerships in the world for the investment portfolio to benefit Missouri’s educators.”
—Craig Husting, CFA, CIO, Assistant Executive Director, Public School & Education Employee Retirement Systems of Missouri
Benjamin Frede is the front man for the Public School & Education Employee Retirement Systems of Missouri’s private equity and private credit endeavors, involved in all aspects of the $4.6 billion portfolio’s strategy development, execution, due diligence, and maintenance procedures. He joined the institution about three years ago after rising through the ranks at the Missouri State Employees’ Retirement System, first gauging investment performance and risk, then as an investment officer for illiquid alpha strategies.
Beforehand, he worked as a retail banker at Commerce Bancshares and UMB Bank, where he simultaneously earned his MBA at the University of Missouri Trulaske College of Business. Frede is a CFA and CAIA charter holder, and has ample volunteering experience working for the police retirement board for the city of Columbia, Missouri, as well as serving as an adjunct instructor at Columbia College.
Frede joined the ranks of NextGen winners on the heels of hard work and innovation, which he was happy to share details on along with his views of the market and how the Midwestern portfolio can be best prepared for the market moving forward.
CIO: What makes 2019 an interesting investing climate? How are you handling it?
Frede: 2019 has been an interesting year. Here are a few headlines from The Wall Street Journal: “Dow, In Overdrive, Races Above [ ],” “Technology Investors Fall Head Over Heels for Their New Love,” “Tear Down the Trade Wall,” “The Challenge We Face in Russia,” “Stocks Plunge [ ] Amid Panicky Selling,” and “At Last, A Tax Cut.” However, these headlines are not from 2019. They are headlines from articles published during my lifetime: 1997, 1995, 1993, 1992, 1987, and 1983, respectively (source: The WSJ 125 Archive).
I find referring to the past can help put the present in perspective. Yes, today’s news and headlines are critically important to understanding the world around us and managing our portfolios, but most headlines will be lost in the sands of time and are too often noise.
So, how am I handling the current market environment? Remain focused on the long-term. Continue with previously established plans. Moderately tilt current commitments to strategies that may be able to take advantage of near-term opportunities. Reassess my views.
CIO: After this year, what are the largest opportunities and the largest threats you see on the horizon?
Frede: Largest opportunities: According to the United States Census Bureau, by 2030, all baby boomers in the US will be age 65 or older. Many of these soon-to-be retirees own a small business, a family farm, real estate holdings, or other illiquid assets, and they may not have a natural exit option. If one accepts the premise 1) the lower end of the market is less efficient than the upper end, and 2) there will be a supply-demand imbalance for these assets, then an opportunity may exist for private capital, institutional investors, and entrepreneurs—particularly those who are small and/or nimble—to acquire high-quality, long-lived assets at attractive valuations.
Largest threats: It is my view that trust in our institutions—government and elected officials, “Wall Street,” corporations and executives, news and media, big tech, law enforcement and the judicial system, national security, global alliances—is deteriorating. Recessions, economic downturns, higher unemployment, and inflation are normal parts of the business cycle and, in most case, are manageable. However, in my opinion when we face the next recession, challenge or crisis, it will be more difficult for our institutions to make the best decisions possible with all available facts because of society’s declining faith and confidence in these institutions. I hope my assessment is inaccurate.
CIO: How did you arrive at your current position? And why did you choose this part of the financial services industry?
Frede: I joined Missouri State Employees’ Retirement System (MOSERS) as a performance and risk analyst in 2008. This role provided me the opportunity to learn the fundamental building blocks of portfolio management, learn from a well-respected CIO, and gain exposure to all asset classes. During this time, I developed a strong interest in private equity and other illiquid strategies and was able to move to the private markets team in 2012.
In 2016, Public School & Education Employee Retirement Systems of Missouri (PSRS/PEERS) increased its long-term policy targets to private risk assets, which resulted in the need to grow the team. My phone rang and for the second time I was able to join a great organization and investment team, led by a well-respected CIO and executive director, to help manage all aspects of the private equity and private credit portfolios.
I was in banking prior to switching careers to institutional investing. I was attracted to capital allocation and portfolio management because it is multidisciplinary (a combination of corporate finance, accounting, economics, management, marketing, law, politics, history, talent management, behavioral finance, culture, and more), a field where you are always learning, long-term focused, and a career where you can see the positive impact your work has on your neighbors and community.
CIO: What was the most important strategic allocation of your career?
Frede: I’d like to respond to this question looking toward the future as opposed to the past. Over the last year, I have spent time evaluating credit opportunities in Asia, a strategy that the portfolio has limited exposure. Reoccurring themes from my research and from conversations with managers have included: the impact of recent changes to India’s corporate bankruptcy laws, bank retrenchment in real estate lending in Australia, non-performing loans in China, capital solutions to commodity-sensitive borrowers, and more.
These current themes, combined with growing trade tensions between the US and China, concerns about a global or regional economic slowdown, and the potential for insufficient supply of capital relative to the demand, may lead to compelling investment opportunities. However, the jury is still out on whether investors are adequately compensated on a risk-adjusted basis compared to credit opportunities in the US and Europe.
If this strategy is implemented, the allocation has the potential to be quite significant, implemented in multiple ways over several years, and a meaningful strategic allocation relative to the policy benchmark.
CIO: Tips for money managers who want to work with you, especially what not to do.
Frede: In an unconstrained world, it would be nice to dig deeper on your firm and strategy. However, time is our most valuable resource, phone calls usually don’t last five minutes, and coffee is rarely quick. Therefore, I may provide a quick “no” or your inquiry may go without a response. In most cases, the door will remain open to reconnect in the future.
One good tip of something not to do: if I have politely passed on taking next steps with your fund offering, please do not contact someone else in my organization pitching the same idea. If the strategy falls in my area, it will likely be forwarded to me. My interest probably won’t be higher the second time.
CIO: Biggest goof a money manager has made with you?
Frede: An employee at a manager once emailed me their personal bank statements, tax returns, and a mortgage loan application. Apparently, my email was similar to their loan officer’s email. I promptly deleted the email (without opening the attachments, I promise), notified the person of the mistake, and jokingly said the loan had been denied. I was a banker in a prior life.
CIO: Who in the financial world would you like to have lunch with and why?
Frede: Warren Buffett. Yes, this is a cliché response. However, I grew up 90 miles south of Omaha, Nebraska, and Warren Buffett was the first investor I learned about when I started to become interested in investing at a young age.
Why Warren Buffett? Decades of experience, more investment successes and failures than almost any other investor, believes he is a teacher as well as an investor, down-to-earth, and funny. I can be in Omaha with about five hours’ notice if a lunch invitation is extended.
CIO: What are changes you’d like to see the institutional investing community make in 10 years?
Frede: More strategic partnerships. Collaborating with peers, sharing thoughts about managers and strategies, and discussing best practices is great. However, as our industry strives to be more creative with implementing alpha strategies, generating better net of fees risk-adjusted returns, and improving alignment of interest, there may be more opportunities for institutional investors to create strategic partnerships or joint ventures to scale, leverage resources, and accomplish mutual objectives.
Less emphasis on publishing and comparing short-term performance.
CIO: What are your hobbies not correlated to work?
Frede: Perhaps a bit related to work, a few years before switching careers, my best friend and I had the idea to start an investment club. We pitched the idea to a dozen friends, which resonated with them, and for the last 14 years we’ve been meeting monthly to buy and sell stocks together. Although our lives have changed with weddings, children, new jobs, moving, etc., we have been able to keep the club operational and continue to have fun.
My 6-year-old daughter is curious about so many new things—art, geology, and anything science-related, playing chess, learning guitar, and more. I have enjoyed learning about each of her interests together. In that same vein, I too love to learn new things and frequently read about a wide range of topics: history, science, politics, and human behavior, among others.
