E137: Lessons from Managing $300 Billion Dollars w/ John Skjervem (CIO of URS)
Digest
This podcast features an interview with the CIO of Utah Retirement Systems (URS), discussing their investment strategies and governance structure. The CIO argues that transparency in public pension fund management is negatively correlated with returns due to political interference. URS's success is attributed to its closed-door investment decision-making process, allowing for a long-term focus and greater agility. A significant portion of URS's $50 billion portfolio is allocated to private markets, particularly venture capital and direct investments, driven by a belief that smaller funds have better access to these opportunities. The ideal check size for private market investments and the importance of risk budgeting are discussed. The CIO highlights their advisory roles and the diverse perspectives gained, emphasizing the similarities between URS and the Alaska Permanent Fund Corporation. Lessons learned from the 2008 financial crisis include the importance of focusing equity risk on high-return opportunities like venture capital, rather than lower-return options. The podcast concludes with a detailed examination of URS's high-risk, high-reward fusion energy investment portfolio, showcasing their commitment to potentially transformative, albeit uncertain, investments.
Outlines
Public Pension Fund Management: Transparency vs. Opacity and Investment Strategy
This section contrasts transparency and returns in public pension plans, arguing that transparency leads to political interference and suboptimal investment decisions. It introduces Utah Retirement Systems' (URS) unique governance structure emphasizing closed-door investment decisions and a significant allocation to private markets, particularly venture capital and direct investments.
URS's Asset Allocation and the Advantages of a $50 Billion Fund
This section details URS's asset allocation strategy, highlighting the advantages and disadvantages of managing a $50 billion fund. It emphasizes the benefits of smaller fund size for agility and access to private markets, discussing ideal check sizes for private market investments and the importance of risk budgeting.
Advisory Roles, Lessons from 2008, and the Fusion Portfolio
This section covers the CIO's advisory roles, insights gained from the 2008 financial crisis (emphasizing risk budgeting and focusing equity risk on high-return opportunities), and a detailed look at URS's high-risk, high-reward fusion energy investment portfolio.
Keywords
Opacity in Public Pension Fund Management
The practice of keeping investment decision-making processes of public pension funds private to avoid political influence and prioritize objective investment strategies.
Direct Investment
Investing directly in assets (e.g., real estate, private companies) rather than through intermediaries. Offers greater control and potential for higher returns.
Risk Budgeting
A portfolio management strategy that allocates a predetermined amount of risk across different asset classes. Ensures diversification and helps manage overall portfolio risk.
Venture Capital
Investment in early-stage companies with high growth potential. High risk, high reward asset class.
Alternative Investments
Investments in asset classes beyond traditional stocks and bonds, such as private equity, real estate, and hedge funds.
Fusion Energy
A potential clean energy source that involves harnessing the energy released from nuclear fusion reactions. High risk, high reward investment with potentially transformative impact.
Private Markets
Markets where investments are not publicly traded, offering opportunities for higher returns but with less liquidity.
Long-Term Investment Strategy
An investment approach focused on long-term growth and returns, rather than short-term gains.
Q&A
Why is transparency negatively correlated with returns in public pension funds?
Transparency invites political interference and pressure, leading to less objective decision-making and potentially lower returns.
What are the key components of Utah Retirement Systems' successful governance structure?
Staff investment discretion, closed-door board meetings for investment matters, and a long-term investment horizon.
What are the advantages and disadvantages of managing a large pension fund?
Larger funds benefit from scale in public markets, but smaller funds offer greater agility and access to private markets.
What are some of the most interesting and potentially high-return, high-risk investments made by URS?
URS's fusion energy portfolio is a prime example of a high-risk, high-reward investment.
What key lessons did you learn from the 2008 financial crisis?
The importance of risk budgeting and focusing equity risk on high-return opportunities like venture capital.
Show Notes
Highlights:
Governance Matters: Why URS’s closed-door investment meetings create better outcomes compared to traditional public pension governance.
Transparency vs. Returns: How excessive transparency can lead to political grandstanding and ultimately harm long-term investment performance.
Asset Allocation Strategy: A deep dive into URS’s allocation, including a 14% allocation to private equity with significant exposure to venture capital.
Direct Real Estate Investments: How URS has built a successful real estate portfolio, reducing fees and maintaining long-term control over assets.
Energy and Infrastructure Investments: The role of direct investments in oil, gas, and alternative energy as an inflation hedge.
The Case for Venture Capital: Why URS prioritizes venture capital investments over private credit to maximize returns.
Betting on Nuclear Fusion: The potential for a 100x return on URS’s investments in fusion energy and the long-term implications for the energy sector.
Size vs. Agility: Why smaller funds like URS have an advantage in private markets despite their scale limitations.
Lessons from the Global Financial Crisis: How John’s approach to risk management and asset allocation was shaped by 2008.
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Guest Bio:
John Skjervem serves as the Chief Investment Officer at Utah Retirement Systems, where he oversees over $50 billion in assets. With prior experience managing larger funds like the Oregon Public Employees Retirement Fund and Northern Trust's wealth business, John brings a wealth of expertise to his current role. Known for his innovative governance approach and deep knowledge of alternative investments, John is passionate about achieving long-term success for URS beneficiaries.
Our Podcast now receives more than 300,000 downloads a month. Are you interested in sponsoring an episode? Please email David Weisburd at dweisburd@gmail.com.
We’d like to thank @JuniperSquare @ReedSmith for sponsoring this episode!
#VentureCapital #VC #Startups #OpenLP #AssetManagement
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SPONSOR:
Juniper Square is dedicated to transforming the private markets investing experience. The company provides a full range of modern, connected fund technologies and services for over 2,100 private markets GPs across fundraising, reporting, fund administration, treasury, compliance, and business intelligence. Today, over $1 trillion of assets and 600,000+ LP accounts are managed through Juniper Square software and fund administration services. Learn more at www.junipersquare.com.
SPONSOR:
Reed Smith is a dynamic international law firm dedicated to helping clients move their businesses forward. With an inclusive culture and innovative mindset, Reed Smith delivers smarter, more creative legal services that drive better outcomes for their clients. Their deep industry knowledge, long-standing relationships and collaborative structure make them the go-to partner for complex disputes, transactions, and regulatory matters. Learn more at www.reedsmith.com.
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Stay Connected:
Twitter:
David Weisburd: https://x.com/DWeisburd
LinkedIn:
David Weisburd: https://www.linkedin.com/in/dweisburd/
John Skjervem: https://www.linkedin.com/in/john-d-skjervem-cfa-4698794/
Links
Utah Retirement Systems: https://www.urs.org/
Questions or topics you want us to discuss on How I Invest? Email us at dweisburd@gmail.com.
(0:00 ) Episode preview
(1:00 ) Asset allocation and governance at Utah Retirement Systems
(4:07 ) Governance structure at Utah Retirement Systems
(9:25 ) Long-term investment challenges
(10:57 ) Sponsor: Juniper Square
(11:30 ) Private equity and real estate in asset allocation
(15:44 ) Managing a $50 billion fund
(16:25 ) Sponsor: Reed Smith
(17:30 ) Investment check sizes and advisory roles
(20:31 ) Comparing Utah Retirement Systems with Alaska Permanent Fund
(22:11 ) Lessons from the 2008 financial crisis
(23:57 ) Exploring high-risk investments: Fusion portfolio
(26:10 ) Closing remarks
Table of contents
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