Virginia Commonwealth University Creates In-House Manager

Nancy Everett A former Promark Global Advisors CEO and Virginia state pension CIO has been appointed to lead a newly created investment adviser for the Virginia Commonwealth University (VCU).

Nancy Everett is to become CEO and CIO of the VCU Investment Management Company (VCIMCO), an independent 501(c)(3) foundation to advise the university and its affiliated foundations on the management of its assets.

“The creation of the VCU Investment Management Company represents industry best practices in the financial stewardship of the university’s assets,” said Everett. “Our role is to work with VCU and its affiliates to provide the financial stability necessary to fulfill its mission and to help it grow and prosper for generations to come.”

VCU, VCU Health, and affiliated entities have a combined total of more than $2 billion of investable assets. Investing activities by VCIMCO are to begin in early 2016, the university said.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Everett, who joins the firm after two years leading and expanding BlackRock’s US OCIO business and three years at Lombard Odier building the manager’s large client base, has more than 30 years experience in the sector.

From 2005 to 2010, she led General Motors Asset Management, which became Promark Global Advisors, as CEO and CIO, responsible for more than $170 billion in assets. Previously, she had spent 26 years at the Virginia Retirement System where she climbed to the top investment position in 1999.

Alongside Everett, VCIMCO has appointed a board of experienced financial professionals including William Lee as chief operating officer. Lee was chief financial officer and chief compliance officer at Summit Rock Advisors in New York.

Elsewhere in the state, the current CIO of the Virginia Retirement System has been inducted into the 300 Club of influential investors. Ron Schmitz, who runs $68 billion for the state, is the latest CIO to join the group of iconoclastic international investors.

Prior to joining the Virginia system, a role for which he was nominated at CIO‘s Industry Innovation Awards in 2013, Schmitz was responsible for the investment of the $52 billion Oregon Public Employees Retirement Fund, the $3 billion State Accident Insurance Fund and the $12 billion cash management account for state and local governments. In addition to other public fund experience, he also has worked in fund management and employee benefits for a number of private companies, having started in fund management in 1982 with Kraft Foods.

Without the support of a broader de-risking plan, partial buyouts can be an expensive way to only marginally reduce pension risk—and possibly even increase it, argued NISA Investment Advisors in its latest white paper.

“Plan sponsors eyeing a partial buyout… should ask whether de-risking by asset allocation instead can actually get them where they want to be with much less labor and effort.”According to NISA, anything less than a full buyout often leaves a pension plan with a significant amount of risk. Factors such as the allocation of the remaining assets and the demographics of the remaining participants—younger pensioners being both riskier and more likely to stay behind in a partial buyout—can add up to leave a plan in a worse position than it was to begin with.

NISA found that insurers in partial buyouts tend only to be interested in the retiree portion of liabilities—those currently being paid out to former employees who have stopped working. According to the report, a partial buyout of that nature might mean the plan is left with liablities that are smaller, but also more volatile.

“Without a holistic, plan-wide de-risking approach, a partial buyout can lead to the undesirable outcome of paying a premium to achieve a reduction in pension risk that could have been reached by a simple change in asset allocation,” the paper warned.

For more stories like this, sign up for the CIO Alert newsletter. 

According to NISA, “while the size of the liability will decrease after a transaction, the risk reduction may be underwhelming.”

Sponsors should not commit to partial buyouts unless they plan to reduce overall risk in the pension fund as much as possible, NISA said. Instead, the firm supported liability-driven investing, with the report concluding that “a lion’s share of pension risk can be eliminated by simply changing asset allocation.”

“Plan sponsors eyeing a partial buyout… should ask whether derisking by asset allocation instead can actually get them where they want to be with much less labor and effort,” the report continued.

But those in the pension risk transfer business disagreed with NISA’s assessment. Phil Waldeck, head of Prudential Retirement’s Pensions & Structured Solutions business, said that some of the largest and most sophisticated pensions on both sides of the Atlantic have seen value in partial buyouts.

“Companies benefit from a range of solutions to manage risk,” Waldeck said. “As companies’ tolerance for volatile pension outcomes decreases, more companies are electing to achieve greater certainty by transferring pension risk.”

Most recently, the UK pension fund of industrial giant ICI completed a £5 billion ($7.6 billion) derisking project involving several partial buyouts over a three-year period.

For those that do elect to transfer risk, NISA advised mitigating the risk leftover by shifting asset allocation to match the remaining liabilities. By combining the two strategies, the report concluded, pensions might actually achieve the best results.