China SWF CIO Lands Promotion | Chief Investment Officer

(January 21, 2014) — The CIO of the China Investment Corporation (CIC) is following in the steps of his predecessor to become vice chairman of the country’s largest asset pool.

Li Keping is to take over the role when Gao Xiqing the fund’s current vice chairman and president retires this year, Bloomberg has reported, citing sources close to the CIC.

This move would be the second time Li has followed Gao into a role. In 2011, he took over the CIO role that Gao had held since inception in 2007.

Before joining the CIC, Li had been vice-chairman of China’s smaller asset pool, the National Social Security Fund (NSSF)—and CIO since 2001.

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When Li joined CIC, Ashby Monk at the University of Oxford’s Sovereign Wealth Fund Project said in a blog that the move was a good one.

“Much of his time at the NSSF was spent building the fund from the ground up (his appointment began only a year after the fund was established in 2000),” Monk said. “So, Li is rightly seen as the key architect of the NSSF’s increasingly sophisticated investment strategy. It’s clear (at least to me) that the CIC is getting a solid CIO with a long investment track record. And, if you’ll permit a bit of provocation, it’s probably about time, as the other key executives at the CIC — while brilliant and accomplished — aren’t investors.”

Last year, Lou Jiwei said he had been privileged to serve as the founding CIC Chairman of the alongside its “dedicated staff” and his departure in July paved the way for a new internal structure at the fund.

He presented a six-item agenda, ranging from consolidating research and investment teams to enhancing allocations and investment competence, as well as launching analytical systems to improve monitoring and oversight. Some 36.2% of the CIC’s assets was managed internally at the end of 2012 by a global investment staff of 443, and its international portfolio made a 10.6% return.

Jonathan Grabel, a private equity veteran and now CIO of New Mexico's $14 billion pension fund, plans to take a hard look at the manager roster and get granular with portfolio data.

(January 21, 2014) — Alternatives managers for the New Mexico Public Employees’ Retirement Association (PERA) can leave the instructional slides at home when meeting the fund’s new CIO, a 13-year veteran of private equity.

Jonathan Grabel began his job in sunny Santa Fe in early January, three years after leaving the private sector to become CIO of Maryland’s Montgomery County Public School’s (MCPS) retirement system.

“It’s been exciting,” Grabel tells aiCIO. “It’s been a lot of fun to work with everyone here, and the desert is just so empowering. You should see the view from my office.”

Grabel joined the now-$13.9 billion fund with an impressive background: an economics degree from the University of Pennsylvania’s Wharton School and an MBA from the University of Chicago Booth School of Business. Prior to entering the public pension realm in 2011, he honed his finance skills at accounting firm Arthur Andersen and financial holding company Nomura. He spent a large part of his career at private equity firm Baker Capital as general partner, where he says he developed strength in “investing in growth” as opposed to “financial engineering.”

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“I was able to build a very interesting portfolio, especially after experiencing the technology bubble, the dot-com crisis, and the 2008 financial crisis,” he adds. “I was working with people from all sorts of backgrounds then—operations, transactions, investing—and really learned the importance of strategy, policy, and processes.”

These lessons became essential as he transitioned into the CIO role with MCPS, he says.

Stewards of public pension assets have an immense task, Grabel admits: “There are a lot of promises made to public employees. We need to roll up our sleeves and make sure those promises are made good and that our assets are deployed appropriately in the context of the liabilities without taking excessive risk.”

At MCPS, a $2.5 billion education fund covering much of the Washington, DC metro area, Grabel put his prior experience to use for its 23,000 employees and 13,000 retirees.

“Real results come from good processes and we really had three strong legs to the stool: the board, our staff, and the advisors and consultants,” Grabel says. “We had spirited conversation, thoughts, pushbacks, and discourse.”

With a highly functioning governance structure in place, the CIO was able to both simplify and complicate the portfolio.

“The last couple of years were great for beta,” he says. Amid these hot markets, Grabel indexed a large portion of the portfolio in relatively efficient asset categories to cut extraneous management fees.

By the end of his tenure at MCPS, he was able to grow the alternative investments to 22% of total plan assets by concentrating active risks on less efficient strategies: “There were some real opportunities for alpha, if you looked carefully at 1st and 3rd quartile spread of manager results.”

Grabel’s goal wasn’t to find and invest in easy and safe alternatives strategies, he adds, but rather to become increasingly flexible and nimble.

“It was more opportunistic—we really looked to find market inefficiencies and structured the portfolio accordingly,” Grabel says.

It helped to look at the larger picture too, the CIO admits. To Grabel, the job is largely about sensible awareness of the portfolio and other contributing factors such as market environments, risk metrics, Sharpe ratios etc.—but all in context of the plan’s strategies and liabilities.

“We tried to not just manage the portfolio from the perspective of looking at the rearview mirror and historical returns, but also to get a more nuanced look at the portfolio as a whole,” he says. “It’s easy to fall into the trap of following the money and using investment strategies that are simply topical.”

At New Mexico PERA, Grabel works with a 10-person investment group and 12 board members. Despite his varied investing experiences and work in Maryland, he says he’s still finding the right balance with the PERA team and earning the board’s trust as CIO.

“I really do have to prove my worth to the board—take stock of what we have beyond my preconceived notions, and be deliberate and thoughtful about ways to potentially improve the risk-reward profile of the plan,” he says.

So what’s in store for PERA with Grabel as ringleader?

“Well, we’ve had a great fiscal year,” he says. PERA saw a 16.7% return last year, boosting its total assets to an all-time high of $13.9 billion. “To continue on this legacy, I think we need to find more commonalities in risk factors among strategies.”

First step? Evaluating the portfolio and going over the plan’s manager roster.

“We’re trying to leverage the internal expertise across teams and disciplines in order to be as thoughtful as possible,” Grabel says. “We can be more granular in collecting and understanding data. It’s important to look at underlying positions of our managers and make sure they aren’t working at cross-purposes and that we’re neither overly diversified nor not diversified enough. The portfolio should match the larger strategic allocation.”

Granular data would also aid the investment team in guarding against macro markets changes, according to the CIO.

“The fear is complacency,” he says. “It’s difficult for public plans to be incredibly nimble. It then becomes extremely helpful for the board to have actionable, granular data so it can respond to potential changes in the macro markets and best position the portfolio in any direction.”

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