What do you do when your pension fund’s funded status is record high? You work to increase it even more. That was the path taken by Kodak CIO Thomas Mucha, who raised the company’s pension funded status to 145% as of June 30, 2023, from 131% in 2021 with no contributions from Kodak. When Mucha joined in early 2013, funded status stood at 91%.

With such a high funded status, many would increase their liability hedge ratio. However, going into 2022, Kodak decreased its liability hedge. The fund used derivates for its hedging portfolio, and when modeling liquidity scenarios, the fund did not like scenarios in which interest rates would rise and return-seeking assets fall.

Mucha and his team instead cut the fund’s hedge ratio and sold Treasury futures. When interest rates rose, funded status increased significantly, and the fund was able to preserve liquidity, that would otherwise have gone to paying losses on the portfolio’s future contracts.

Much of Kodak’s strong performance came from its portable alpha hedge fund portfolio, according to information Mucha’s team provided to CIO. Representing 32% of assets, the portfolio returned 14% in 2022, which helped the plan’s funded status by 15%, in a year when most returns were poor for investments across the board.

Mucha has also declined to de-risk the portfolio, saying “given positive fund flows in and dislocations in certain asset classes, we feel comfortable taking more risk currently.”

Known for its private equity focus in the lower-middle market, Kodak has also developed a process to underwrite deals with independent sponsors and later evaluate their deals as if they were co-investments.

Mucha told CIO he finds it fruitful to collaborate with smaller partners. “We are too small a pension plan to engage in multi-billion-dollar collaborations with large asset management companies, “Mucha says. “Instead, we have found it fruitful to collaborate with smaller managers that are ready to become institutional quality but need some coaching.”

Mucha was clear that there are many ways to accomplish a pension fund’s goals.

“We CIOs are not playing a zero-sum game. We can all win. But you have to do it your own way—the way that reflects your unique talents and circumstances,” Mucha says. “Figure out your competitive advantages and lean on them. And don’t try to play someone else’s game.”

Kodak’s defined benefit plan has $6.5 billion in managed assets. The fund returned 3.0%, 9.0% and 9.2% annualized for the prior one, five and 10 years, as of June 30, 2023.

—Matt Toledo