Chris Ailman Wins CIO’s 2023 Lifetime Achievement Award

The CalSTRS investment chief, a masterful financial strategist and well-regarded collaborator with peers, receives the honor at CIO’s Industry Innovation Awards.

Photography by Anthony Collins

Christopher Ailman is a giant among asset allocators. As part of the 2023 Industry Innovation Awards, CIO Tuesday night honored Ailman, the longtime CIO of the California State Teachers’ Retirement System, with a Lifetime Achievement Award in recognition of his many accomplishments.

A dynamic personality and deep thinker on economic and financial topics, he has established a strong record since joining CalSTRS, the nation’s second largest pension plan with assets most recently listed at $305 billion, in 2000. The fund has clocked a 10.1% annualized performance over the last three years, easily surpassing its 7% actuarial assumption.

Ailman has devoted his entire career to public pension programs. His tenure at CalSTRS came after years heading other public retirement plans, including the Sacramento County Employees Retirement System and the Washington State Investment Board.

Ailman is always looking for ways to boost returns by taking bold steps. For example, while public equity is the fund’s largest asset class, at 37%, Ailman intends to boost fixed income to 14% from 10% to take advantage of current elevated yields. Where once CalSTRS’ assets were overwhelmingly run by outside managers, Ailman has pushed to bring two-thirds of the money management in-house, an initiative called the collaborative model.

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Like other pension funds, CalSTRS took a pasting in the global financial crisis of 2008 to 2009. But it has inched its way back and, as of mid-2022, stood at 74.4% funded. Its steady-as-she-goes strategy is to be fully funded by 2046.

Ask other CIOs, and they will regale you with how Ailman has reached out to them and offered advice and friendship. He has worked with peers on smart ways to deal with private equity firms, whose fees are often high, for instance.

As a well-known investing sage, appearing on television and as a public speaker, he stands out as an advocate for environmental, social and governance goals and for more diversity and inclusion in the financial industry. He set a goal to halve CalSTRS’ exposure to carbon emitters by 2030.

Perhaps his most prominent ESG initiative was to add CalSTRS’ weight to a 2021 campaign by an activist hedge fund, Engine No. 1, to change ExxonMobil’s board. CalSTRS’ example led two other pension giants, the California Public Employees’ Retirement System and the New York State Common Retirement Fund, to join in on the effort. The investor activism was a success: In 2021, they won three of four director seats they sought. Common practice for pension funds when they disagree with a portfolio company’s policies had been to ditch its shares. The change on the oil giant’s board was big news around the world.

Further back, in 2012, CalSTRS decried Facebook (now Meta Platforms) when it went public with an all-male board. In 2017, Ailman backed State Street Global Advisors when it pushed for more female board directors in corporate America.

Along with his efforts to promote fairness and good works nationwide, Ailman never loses sight of his primary mandate: California educators’ well-being. In a recent CNBC appearance, Ailman talked about how CalSTRS’ portfolio was “diversified and very complex.” But he also highlighted the transparency the plan strove for, to let its beneficiaries understand that CalSTRS was in good shape.

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Tags: California Teachers’ Retirement System, CalSTRS, Chris Ailman, Christopher Ailman, ExxonMobil, Lifetime Achievement Award

Department of Labor Inspector General Larry Turner issued a semi-annual report Tuesday arguing that the Employee Benefit Security Administration lacks both the resources and authority to fulfill its mandate to employee benefit plans.

The report particularly emphasized EBSA’s limited authority to conduct thorough audits of workplace retirement plans.

“ERISA provisions allow billions of dollars in pension assets to escape full audit scrutiny,” the report stated, addressing limited-scope plan audits, which occur when pensions with at least 100 participants can get certain assets verified by a bank or insurance company, thereby avoiding an additional EBSA audit.

The report stated that this approach to auditing provides “little to no confirmation regarding the actual existence or value of the assets.”

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Bradford Campbell, a partner at Faegre Drinker and former head of EBSA, says limited-scope audits have been “a perennial favorite of the OIG.” He argues that where assets are overseen by another body, “it would be expensive, impractical and wasteful to require multiple, duplicative audits.”

If a bank or insurance company “certifies the assets subject to their own regulatory requirements,” as opposed to government requirements, then it does not make sense for the plan to also be audited by EBSA, according to Campbell.

The Office of the Inspector General also highlighted in the report EBSA’s lack of authority over the Federal Retirement Thrift Investment Board; EBSA is limited to making recommendations, but it cannot compel the board to follow them.

The report highlighted the cybersecurity risks facing the Thrift Savings Plan and lamented EBSA does not have more oversight of third-party cybersecurity vendors and practices, noting that “cyber threats potentially place at risk trillions of dollars in other ERISA-covered retirement plan assets.”

Campbell counters that the limited authority over the Federal Thrift Board “was not an oversight but intentional policy: EBSA serves as an experienced and effective watchdog but was never intended to have discretionary authority over federal employee retirement plans.”

Among other areas, the 176-page report noted that EBSA lacks the resources to protect an estimated 70 million plan participants in self-insured health plans from “improper denial of health claims.”

Campbell says the issues raised by the Office of the Inspector General are those “that require statutory changes unlikely to be made,” and the office should instead focus on the “agency’s effectiveness in utilizing the resources and authority that it currently has.”

Tags: audit, EBSA, United States Department of Labor (DOL)