Power 100: Bob Jacksha, CIO, New Mexico Educational Retirement Board

Bob Jacksha, CIO of the New Mexico Educational
Retirement Board is on CIO’s 2018-2019 Power 100 list

Serving Educators with Diversified Investments

In 2007, Bob Jacksha became CIO of the New Mexico Educational Retirement Board, which manages the pension plan for the state’s educators. Previously, he served as the deputy CIO at the New Mexico State Investment Council. 

The education fund, which had an asset value of $12.9 billion when its fiscal year ended June 30, covers close to 60,000 active members currently paying into the system and 47,000 retirees, ranging from public school teachers, administrators, and staff to college faculty and staff.

CIO: What are some of the recent accomplishments you are most happy to have achieved as a CIO?

Jacksha: First, we have hired and trained an excellent staff. Constructing and managing modern, diversified portfolios requires well-schooled professionals and adequate staffing levels. Managing investments is very much a people business.

One of the major challenges in this area for us is compensation levels. Public pension funds as a whole tend to lag other investment organizations such as foundations, endowments, and certainly investment managers. Our levels were previously dictated by New Mexico State classified service schedules, which are substantially lower than almost all other state funds in the country. This has led to difficult and lengthy recruitment for professional-level investment staff positions and concerns about retaining existing staff. 

After a couple of years of working through the state bureaucracy, we were able to take the first step in addressing the issue earlier this year. We moved the professional staff out of the classified system to give us more flexibility in salary ranges and implemented the first of three planned adjustments in compensation. This would stand out as one of the key accomplishments we have achieved, although our work is not finished.

CIO: Tell us how you’ve handled investment challenges.

Jacksha: In managing an investment portfolio, it seems your work is never finished. That applies to the other accomplishment I would mention. Prior to 2005, investment organizations in New Mexico were constrained by a “legal list.” State statutes constrained investments to allowable categories defined by law. These generally did not include alternative investments and in some cases capped or precluded non-US investments. In 2005, I was with another New Mexico organization, the State Investment Council.  We worked with the other New Mexico organizations, including the Educational Retirement Board (ERB), my present domain, to successfully remove these restrictions. 

Subsequently, in 2007, I was hired as the CIO of ERB to build out a more diversified portfolio in light of the reduced restrictions. Like most public funds, we have done that and now have substantial allocations to alternative and private investments in private equity, real estate, infrastructure, natural resources, etc. 

I started by saying it seems your work is never finished. That would apply to our diversification efforts. In our last asset allocation, we added a category simply called “Diversifying Assets – Other,” with the intention of populating it with non-traditional alternative investments that may fall outside of the normal alternative categories of private equity, etc.  Informally we call them “alternative-alternatives.”  The category is rather loosely defined, but we are looking for investments that will contribute to our return goals and that are not highly correlated to public markets, particularly equities. 

So far, we have made investments in reinsurance, energy project finance, and what might be described as structured credit. Definitions often get fuzzy in this space. We are looking at other areas including royalty streams, aircraft leasing, and others that are to be determined. Our work continues. We are also working on plans to expand our co-investment program.

CIO: What are some of the key challenges the industry faces?

Jacksha: For a public pension plan, it all revolves around reliably meeting your future liabilities. The first challenge is meeting your rate of return goal. Most, if not virtually all plans, have lowered their expectations for future returns. 

The information we have would indicate the median return assumption for state plans is around 7.3%.  Some critics of public plans would argue that is still too high. Given current conditions and the outlook for markets, they may be right. In any case, it will likely be challenging in the next few years to hit return targets. 

Regardless of whether those return goals are met, there are still long-term challenges regarding the proper funding and benefit levels of many plans, ours included. While many plans have made changes in benefits and contributions, more adjustments may have to be made (again, our plan included). 

Our board of trustees is in the process of examining our situation and will likely send a proposal to our legislature for consideration in January. Our benefits, eligibility, and contributions are set by state statute and thus require legislative action. These are difficult and challenging conversations to have with our beneficiaries and legislators.

CIO: What aspects about the future of the industry do you find most promising and exciting?

Jacksha: I don’t know what the future of this industry will bring, but I do know it is dynamic and always interesting.  Sometimes a bit too interesting, perhaps?  It has been my privilege to take part in it so far and I look forward to what is to come.