For Andrew Palmer, the most important thing is trust. 

Palmer, CIO of the Maryland State Retirement Agency, would rather talk about his efforts to build confidence among and between the pension fund’s various stakeholders—plan participants, state legislature, the board, his staff—than share details about investments and risk strategy. 

“One of the keys to success is to have a high degree of trust between all the stakeholders involved in managing a pension system,” Palmer told CIO. “We’re really just trying to build something that’s effective and long-lasting and that can be impactful.”

Over his seven-and-a-half-year tenure, Palmer has also focused on expanding and professionalizing the fund’s staff. Those foundational changes helped the $65 billion fund smash records in 2021 and even beat its benchmark in the more challenging markets of 2022. Those successes came while Palmer and his staff implemented a comprehensive climate risk framework for the MSRA’s investments. 

“We focus on ESG as a risk issue, but we also see it as an opportunity,” he says, referring to environmental, social and governance precepts. “We’ve been able to demonstrate that we’re making the portfolio more resilient.” 

While some state legislatures have pushed back against ESG frameworks for public funds, Maryland’s has been supportive of the work and has been in discussions about the issues with MSRA staff for years. 

By the time 2022 rolled around and legislators considered mandating that the portfolio divest of fossil fuels completely, the investment staff was able to demonstrate its approach was nimble and poised to respond to future change—whether reacting to continued climate change or transitioning to renewables, as Palmer puts it. 

Instead of forcing divestiture, the legislature passed a law saying that the board should take steps to protect assets from climate risk, but also continue to look for opportunities. 

“The legislature had the trust in us that we were working diligently to address these issues,” Palmer says. “There are always voices that think this is ‘woke,’ but we were able to demonstrate that we weren’t trying to change the world, we were just trying to make better investment decisions.”

When Palmer began his role in 2015, the MSRA had spent a decade reacting to market changes, rather than getting out in front of them. After the dot-com wreck, the board decided to reduce equity exposure. By the time that allocation strategy was implemented, financial markets were rebounding from the 2008 financial crisis, and the fund missed out on those gains. 

Bringing broader diversification to the portfolio has meant adding exposure to several additional asset classes, including small-cap domestic stocks, investment-grade corporate bonds, global infrastructure equities and more. The MSRA is also co-investing in private equity and other asset classes. 

Those changes have paid off. In fiscal year 2022, the fund lost 3% but still beat its benchmark by 53 basis points. In 2021, it had a record return of 26.7%, trouncing its benchmark by 230 bps. 

Another point of pride for Palmer is managing a growing staff through the pandemic period. Since the MSRA went remote, it has hired 14 people, and many of those them have never met other staff members in person. “Trying to build and maintain a successful culture is a challenge on Zoom,” Palmer says. 

His philosophy is to make people shine and prepare them for their next job, whether within the MSRA or elsewhere. One element has been delegating some decisions down into the investment team when his own attention is consumed by big events like the March 2020 pandemic shutdown or the Russian invasion of Ukraine.  That resonates throughout the agency and beyond.

“There is such an erosion of trust,” Palmer says. “People trust businesses more than government. We have something like the pension plan that is effectively run and something the state can point to as a model of how government can work effectively.”

—Andrea Riquier