CIO of the Year,
Defined Contribution

Paul Colonna, CIO of the Lockheed Martin Investment Management Co., has long seen the value of private equity investments in the firm’s defined benefit plan. Last year, he and his team took the uniquestep of including a private equity co-investment sleeve in the target-date funds of Lockheed’s defined contribution plans.

For this approach, Colonna was named the winner in the defined contribution category at the 2024 CIO Industry Innovation Awards. He was also named CIO of the Year, selected by a panel of judges from CIO.

The project of adding private equity to the DC plan began three years ago.

“The vision was: How do we bring the best retirement outcomes we can to our DC participants, utilizing all of the investment tools at our disposal?” Colonna says. “One of those was private equity.”

Colonna notes that Lockheed already knew private equity well; the asset class had provided strong performance in the company’s defined benefit plan.

“We started with that vision of thinking about it in the defined contribution plans, and what we realized was that it was a diversifying asset class to our [DC] participants,” Colonna says. “A lot of companies are no longer coming to the public market, especially in the smaller capitalization space. So we felt like this was an area where we could access certain parts of the marketplace, equity market capitalizations that we couldn’t in the public market.”

Why co-investments?

Colonna and his team decided that they could implement private equity in the DC plan, but incorporating a traditional private equity fund—charging fees, such as a management fee of 2% of assets annually plus 20% of profits—in the plan’s target-date fund was not the right approach. The group decided that a co-investment product, in which the Lockheed fund invested alongside a private market manager, could work for the plan. Lower fees were one significant reason.

“When I went to the team with this vision three years ago, they’re kind of like, ‘Paul, it’s private equity: It’s two and 20,’ and I said, ‘Let’s figure out how we can solve that.’ For the participants, obviously, we didn’t want to put in a two-and-20 vehicle into the [DC] plan,” Colonna says. The goal was to “figure out how we can use our innovation, our scale, our partnership with somebody to deliver something different.”

Neuberger Berman was selected by the investment team to partner with the co-investment sleeve.

“It’s all co-investments, and then there’s just a fee on the fund. So we really feel like it’s not a large increase in fees for the overall target-date funds,” Colonna says. “Also, having a partner that understood that and was willing to price accordingly for kind of a new market … You can’t price this like it’s a two-and-20 fund structure in a defined benefit plan. This is a co-investment structure for the defined contribution world.”

Many plan fiduciaries are skeptical of private assets in DC plans, due to liquidity concerns. But liquidity is not a concern for the plan, according to Colonna.

“Our internal innovation around liquidity was to really work this into the target-date fund’s process so that we could still provide all of the liquidity that our participants needed,” Colonna says. The co-investment sleeve has daily net asset value pricing, significant because “on the liquidity side, we have to have daily pricing. It’s a matrix, these are private deals, it’s a sophisticated matrix, which gives us really good optics as to what the daily pricing is.”

The allocation of the glide path in the co-investment sleeve varies based on how close a participant is to retirement.

“We ramp early in the life cycle of a target-date fund,” Colonna says. “We ramp to the maximum [of] 7% in any particular target-date fund. Then it ramps back down, so it’s a ramp-up and then a ramp-down.”

Colonna notes that the fund created with Neuberger has attracted interest from other plans.

“People are trying to understand what this fund is and whether they can put it in their target-date fund,” Colonna says. “So I think there is a lot of interest, but it’s early days still. This was just launched in June or July of last year.”

Colonna joined Lockheed Martin Investment Management as president and CIO in January 2019. He was previously executive vice president and CIO for fundamental equities at State Street. He spent the bulk of his career at GE Asset Management, where he was president and CIO for public investments and a trustee of the GE Pension Trust and GE Retirement Savings Plan.

Colonna earned a bachelor of science degree in business administration and management from Villanova University and earned an MBA from the University of Maryland’s Robert H. Smith School of Business.

—Matt Toledo