The New Kentucky Investment Chief Just Got a 41% Pay Boost

The new investment chief at the Kentucky Public Pensions Authority (KPPA) has received a 41% boost to his base salary. The hike comes after the plan’s board members this week approved a motion to lift the pay ceiling for top investment officials at the retirement system.

Board members are hoping the compensation changes will help the underfunded pension plan hold on to KPPA CIO Steven Herbert. He started in January at the $20 billion retirement system, just as it is undergoing a complete rebranding and overhaul of its operations. KPPA was formerly known as the Kentucky Retirement Systems.

Starting this month, Herbert can earn $235,000 annually, not including incentive pay, up from $167,000 per year. Steve M. Willer, the deputy executive director of investments, who is effectively the DCIO, can earn $190,000 per year, up from $165,000 annually.

The positions have been exempted from a 2016 provision in Kentucky law that prohibited state workers from earning more than the governor. Other public employees have also been exempted from the rule: The state’s recent chief information officer, Charles Grindle, reportedly earned $375,000 annually.

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Even with the boost, Herbert’s salary is still at the low end of what investment chiefs earn at public pension funds. The median compensation for a pension chief investment officer is $331,000 per year, according to the National Association of State Retirement Administrators (NASRA).

“They’re still not competitive, but we’ve gone a long way toward making them work,” KPPA Executive Director Dave Eager said during a special board meeting that was called Tuesday. The motion was approved 7 to 1.

The one trustee who disapproved of the raises argued for an eventual phase-in of the salary increases, instead of the steep, one-time 41% boost. “It’s a bitter pill,” said board member Jerry Powell. He argued that a similar boost in the past for a prior CIO won the pension fund unwanted public attention.

The other board members disagreed. Said trustee John Cheshire, “I’m getting ready to hire a portfolio manager who’s 30 years old with significantly less experience than our CIO, and I’m going to pay him more than that, so when I look at that, that just seems extremely low to me, even still. I would have a retention fear if you don’t go ahead and do what we say we’re going to do.” (Cheshire is the CIO of Asio Capital, an employee-owned wealth management firm.)

Board member Prewitt Lane said the pension fund could not have brought Herbert to KPPA for the next five years without the promise of a more generous compensation package. “He wouldn’t have taken this job,” he said.

Pay is not the only challenge at the pension fund, which has dealt with a history of underfunding and stifling bureaucracy. This month, the fund is splitting into separate board systems to oversee its state and county plans, arguably tripling the work for the CIO at a pension fund that is already understaffed.

The four-person investment team is looking to expand: The pension fund is recruiting a division director for real return and real estate, as well as a research investment analyst.

But trustees hope boosting the low compensation will help the pension fund retain investment chiefs. Six CIOs have come and gone over the past 14 years, departing to take roles at different public funds and corporate firms.

These include David Peden, now a consultant at Mercer subsidiary Pavilion; TJ Carlson, now CIO at Texas Municipal; Adam Tosh, now senior portfolio manager in Alaska’s Bristol Bay Native Corporation; and John Krimmel, now an NEPC consultant.

Pay was cited as a main reason the most recent investment chief, Rich Robben, and deputy CIO Andy Kiehl left last fall for investment consulting jobs at Florida-based AndCo Consulting, said KPPA Executive Director Eager.

The trustees have worked with the state legislature for several years to win an exemption for the investment chief at the retirement system, as well as for the executive director and deputy chief investment officer.

In 2016, the year the governor-pay-ceiling rule was first passed, the KPPA investment chief at the time saw his pay drop to $158,000 from $169,000.

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Tags: Asset, Asset Management, CIO, Investment, investment chief, Kentucky, Kentucky Public Pensions Authority, Kentucky Retirement Systems, Kentucky Teachers Retirement System (KTRS), KERS, KPPA, KRS, pay, Pension, Steven Herbert

The University of Pennsylvania (Penn)’s $14.9 billion endowment is the latest institutional investor to set the goal of eliminating net greenhouse gas emissions from its investment portfolio by 2050.

The target supports the goals of the 2015 Paris Agreement and the UN’s Intergovernmental Panel on Climate Change (IPCC) of reducing the world’s net emissions caused by human activity to zero by 2050 in order to limit the global warming increase to 1.5° Celsius from pre-industrial levels.

Penn’s Office of Investments, which manages the university’s endowment and pension assets, said it will reach net-zero mainly by eliminating the greenhouse gas emissions associated with the endowment’s underlying investments.

“We expect that progress toward the endowment’s net-zero goal will occur both through emissions reductions at the many hundreds of companies in which the endowment is invested, as well as through the redeployment of capital towards investments with low or improving carbon footprints,” wrote University President Amy Gutmann, Provost Wendell Pritchett, Chief Investment Officer Peter Ammon, and Executive Vice President Craig Carnaroli, in a message to the University of Pennsylvania community.

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They also said that any residual emissions within the endowment’s holdings would need to be offset, ideally via investments in enterprises that remove carbon from the atmosphere.

Because consistent methodologies for calculating emissions across different investments are still in the works, the Office of Investments said it expects to collaborate with the university’s faculty experts, as well as organizations developing frameworks and accounting standards and other institutional investors who are also targeting net-zero greenhouse gas emissions.

In a Q&A with the university’s communications office, Ammon said the endowment is looking to eliminate the emissions produced directly by companies during their activities as well as emissions generated in the production of power that companies use.

“We need to start thinking and acting now if we are to achieve both the specific goal and the broader climate result,” Ammon said. “While we have identified 2050 as our goal, we plan to develop interim goals and objectives that we will communicate to the community.”

Ammon said while he didn’t know the size of the endowment’s current emissions footprint, he and his team are starting to build the frameworks that will eventually allow them to calculate it. However, he acknowledged that it could be years before the office can get an accurate estimate.

“While this is frustrating, there is a huge amount of work that we need to do with our managers, and that we and our managers collectively need to do with our underlying investments, in order to figure it out,” he said.

Ammon said most companies in the world don’t measure their emissions, which isn’t helped by the fact that there is no uniform agreement about how emissions should be measured and counted.

“Consistent frameworks for aggregating emissions across investments need to be developed,” he said. “So just figuring out where we are today is going to require a lot of work and a lot of patience.”

University endowments are increasingly pledging that their investment portfolios will target net-zero greenhouse gas emissions by 2050 at the latest. Last month, the University of Michigan committed to reducing the carbon footprint of its $12.5 billion endowment to net-zero by 2050, and in February, Trinity College Cambridge also pledged to target net-zero by 2050. Last year, Harvard University, Stanford University, the University of Oxford, and The University of Cambridge, among others, all pledged to commit to carbon net-zero targets.