Pension Manager: Massachusetts Pension Reserves Investment Management Board
Assets Managed: $51 Billion (Oct. 31, 2012)
PE Assets Managed: $5.9 Billion (Oct. 31, 2012)
PE Allocation (Target): 11.6% (10.0%) (Oct. 31, 2012)
Chief Investment Officer: Michael Trotsky
The $51 billion pension management agency has been hemorrhaging senior talent during the past two years. Among the notable people who have decamped for better-paying jobs in the private sector are the agency’s previous chief investment officer, Stanley Mavromates, who left in May to be CIO at Mercer, the consulting group; Wayne Smith, the previous head of private equity, who left in 2011 for a position at Pathway Capital Management, the fund-of-funds manager; and Michael Langdon, Smith’s deputy, who also left in 2011 to join Hermes Global Private Equity.
“We haven’t had pay raises since 2007,” Trotsky said in an October interview with Buyouts. Trotsky said that an outside compensation consultant told MassPRIM that its pay levels were “well below our public peers and below our private counterparts,” adding that, “we lose just about 100 percent of our top employees to the private sector, and by statute, we have to be in Boston, which is a very competitive market for financial talent.”
Under MassPRIM’s new compensation plan, the executive director, CIO and managers who oversee individual asset classes such as private equity are eligible to earn bonuses of as much as 40 percent of their base pay. The maximum allowable bonus can be earned if the pension exceeds its internal benchmarks by 60 basis points. Merely matching benchmarks will result in no bonus. “I’m hopeful… that we are making real progress, that there will be some stability and some improvement,” Trotsky said.
MassPRIM didn’t discuss baseline salaries, although Trotsky himself earns $295,000 for being both CIO and executive director. MassPRIM’s compensation expenses are less than $5 million, a tiny fraction of the $300 million a year that MassPRIM spends on outside money managers and consultants. Trotsky has told MassPRIM’s board he wanted to cut outside investment expenses substantially.
While it is impossible to know whether MassPRIM’s new incentives might have persuaded those who recently left to stay on, there has been at least one new investing pro hired under the new policy. Eric Nierenberg was tapped in November as MassPRIM’s new head of hedge funds.
Due to their status as state agencies, public pensions have struggled mightily to attract and retain talented staff members in the face of the financial gains to be had in the private sector, which often can offer compensation packages that are many time state-level salaries.
Among the reasons for public pensions to boost compensation is new evidence that performance incentives work, at least for private equity. A December survey by Coller Capital showed that among private equity investors, those that link pay to performance achieve better performance more frequently than those who don’t. Specifically, 55 percent of private equity investors who link pay to performance achieved net annual returns from private equity of at least 11 percent during the last five years. Among private equity investors that didn’t link pay to performance, just 19 percent achieved net annual returns of at least 11 percent during the past five years.