CIO: The CIO 300 Club was established to address what a group of
very accomplished investors see as
fundamental issues that need to be
rethought in investing and markets.
Tell us about it.
Ailman: The 300 Club was formed
in 2011 by Saker Nusseibeh, CEO of
Hermes Investment Management, in
response to the 2008 global financial
crisis. He and the Hermes board felt
that the institutional investor voice was
missing from the market commentary.
The public hears from Wall Street and
the media, but not the actual buyers of
financial products. The idea was that
in periods of extremes, investors with
a longer-term perspective could highlight the impact of the extreme outlier
periods. As institutional investors, we
believe we see things that are otherwise
missed by the mainstream.
The group has issued white papers
on myriad issues and topics challenging current financial
wisdom and investment theory.
The global membership is focused on chief investment
officers, from long-term investors, both plan sponsors and
money managers. I believe individuals should join to help
advance long-term asset owners’ perspectives, push others to
tackle uncomfortable issues, and probe fundamental questions
about the very foundations of the investment industry.
CIO: CalSTRS had another year of strong returns, and long-
term returns have been very impressive for the organization.
What are other key drivers of your returns?
Ailman: Investment performance can always be explained
first and foremost by asset allocation. Our board picked the
right mix; we were smart and nimble in its implementation.
I also firmly believe our internal culture is a key driver of
our long-term investment success. I often tell staff: money
managers’ work culture is a leading indicator and performance (alpha) is a lagging indicator. The challenge today is
to keep our focus on the long-term, single objective of beating
our actuarial assumed rate of return. Looking forward, a
huge challenge to generating returns is keeping costs and
fees from eating into our returns.
CIO: CalSTRS believes firmly in
one-share, one-vote, and is opposed
to dual-class shareholding firms. Is it
a detriment to be excluded from key
innovators like Alphabet and Face-book for this reason?
Ailman: We absolutely believe in a
democratic form of ownership. If
these firms want our capital—and by
default, as owners, we have to share
in the equity risk of the business—you
bet we want a vote in how the company
is structured and top management
rewarded. We don’t want to run the
company; however we want the right
to nominate and vote on board directors who will independently oversee
management and hold it accountable.
I know it seems unfathomable to Mark
Zuckerberg, but CalSTRS will likely
own a stake in his company long after
CIO: Is the scale and size of a fund the size of CalSTRS a help
or hindrance to generating strong returns?
Ailman: Not surprisingly, it’s both. We can take advantage
of the economies of scale, but that also limits our ability to
be nimble. In today’s institutional market, we’re no longer
a mega fund—not with GPIF (Government Pension Investment Fund-Japan) at $1.4 trillion, and Saudi Arabia coming
onto the scene. While CalSTRS is number two in the US, I
wonder if we even rank in the top 25 of global institutional
investors anymore. Plus, we feel and see the increased competition across the globe for private investments and investment
Thanks to our size, we can very efficiently run money
internally—saving tens of millions in fees. But, we also realize
that small allocations to specific investments barely move the
return needle at our total fund level. Collette Chilton, CIO at
Williams College in Massachusetts, can make a $100 million
or $250 million investment, and it will impact her results; we
need to allocate and make investments 10 to 20 times that
size to have an impact. I can’t even imagine what it’s like to be
Hiro Mizumo (CIO at GPIF). —CIO
Read the extended interview online: www. ai-cio.com
Leading the 300 Club and the second largest pension fund in the United States
Chris Ailman, CIO of CalSTRS
#1 Chris Ailman, CIO, CalSTRS (page 19)