The US-Based Public Pension Fund Brain Drain

by Louise Weller

  • 25 Sep 2012
  • PE

Since the start of the year, a number of US-based public pension funds have seen senior private equity investment professionals leave their position for the private sector and reported higher levels of compensation. Public pension funds have historically invested in the private equity asset class in order to achieve portfolio diversification and higher than average returns over a period of time. The long term nature of the asset class is ideally suited to public pension funds that must achieve continued stable returns in order to meet their obligations. With a number of staff members leaving US-based public pension funds in recent months, there is concern how this may affect the private equity investments of these institutions.

Earlier this year, California State Teachers' Retirement System (CalSTRS) saw one of its private equity portfolio managers, Pascal Villiger, leave after four years at the pension fund to join family office, Medley Partners. Soon after this, Steve LeBlanc, former head of private markets at Teacher Retirement System Texas (TRS) left his position to pursue a career in the private sector, after four years at the pension fund. During his time at the pension fund, he invested over $20bn across 90 funds and increased the pension fund’s target allocation to private equity from 10% to 12% of total assets. This subsequently led to his former role being split into two new positions.

In June of this year, senior private equity and real estate officer at Regents of the University of California, Thomas Lurquin, took the decision to join the endowment plan, Stanford Management Company as director of natural resources.  Also, in June of this year, Massachusetts Pension Reserves Investment Management Board (MassPRIM) witnessed the departure of its long-serving CIO. Stanley Mavromates, who joined the pension fund in 2005, left to join Mercer Investing Consulting. This follows two previous departures of senior private equity staff who left the pension fund last year; Michael Langdon, who left to join Hermes GPE, and Wayne Smith, who departed for fund of funds manager, Pathway Capital Management. At present, MassPRIM is yet to fill the position of CIO, with Michael Trotsky currently acting as interim CIO until the board approves the permanent position of CIO.

There is concern that long-standing relationships that have built between investment staff and fund managers over a number of years have be affected. Newer or more junior members of staff will perhaps look to change the focus on private equity programmes, or look to invest with different fund managers before the investment portfolio has had time to mature. Two US public pension funds announced recently they will take measures to review compensation levels of their investment staff, in order to try and prevent further staff departures. Florida State Investment Board and Orange County Employees’ Retirement System have both mentioned they are considering changes to the design of their compensation structure, which may include performance-based pay, in an effort to retain individuals.

At present, the effects of these recent staff changes is yet to be realized and only time will tell what the implications may be for public pension funds that rely on the returns from private equity and other asset classes in order to meet the retirement obligations for their members. Although public pension funds will remain active investors in private equity, the investment style these institutions follow may change, with further job changes and departures also a possibility.

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