2018 Industry Innovation Awards

Public Defined Benefit Plan Below $15 Billion

Wyoming Retirement System

Sam Masoudi, Chief Investment Officer
Art by John Jay Cabuay

Sam Masoudi joined the $8.4 billion Wyoming Retirement System as its chief investment officer in 2013, taking a skeleton crew of three and turning it into an eight-person investment program that hires its analysts directly from the state’s public university.

When he arrived, he saw the organization needed a turnaround. Masoudi stabilized the investment division by improving the work culture and environment. That included the team approach, pairing off like-minded individuals in charge of specific asset classes.

“When I joined WRS, I was the third CIO in four years. There were three other professionals, but only one had been there for more than a year,” he told CIO. “I inherited an organization without much infrastructure or institutional knowledge. Shortly after arriving, I launched a five-year plan to build out staff, revamp the portfolio, and improve institutional knowledge.  ”

The greatest challenge Masoudi faced was building out the team. “There is no local investment industry, and it was difficult to convince candidates to relocate, so, I created a plan to grow our own professionals.” 

Masoudi developed a program to hire summer interns from the University of Wyoming, who would then have the potential to become full-time analysts after graduation.  “We hired every one of our analysts through this program,” he said.

This is a boon in Wyoming, which has the smallest population in the US and strives to keep its young people from heading to major metropolitan centers out of state. “By hiring solely from the University of Wyoming, we’re keeping smart local kids in-state and building a more stable investment team,” Masoudi said.  “This approach has greatly benefited the pension, and Wyoming legislators love it, too.”

He divided the group into two-person teams, each comprised of a senior investment officer and an analyst, that focus on one asset class.  “Now we have more of an effective structure that allows the team to maximize its impact,” he said.  “It used to be that, if an equity manager wanted to come in, it wasn’t clear who they were supposed to contact. And on our end, it was never clear who was responsible for which relationships and who was accountable for each investment. It just ended up being very, very disorganized,” Masoudi said.

Now, for the senior investment officer covering equities, “anything equity-related goes to him. He can use his analyst to leverage his impact; and this allows the analyst to start developing their asset-class expertise as well,” he said.

Masoudi started the retirement system’s in-house tactical trading program, which boosts returns by capitalizing on extreme valuations in specific securities and markets.

“So, for instance, we shorted Italian 10-year government bonds when they were trading at around a 1.5% interest rate, which was absurd given all the challenges they faced,” he said. “There was not much room for the rate to decline.  We made money on the trade as the market began to appreciate the risk of the securities and the interest rate increased.”

The Wyoming Retirement System’s asset allocation is 45% equity, 20% fixed income, 15% private markets and 19% alternatives.

As for where the market is in the cycle, Masoudi estimates it’s about the “ninth inning” of what appears to be an excessively long rotation. That’s partially because “this is the end of a long-term debt cycle that is more similar to the Great Depression than to any of the other recessions we’ve seen in our lifetimes.” He is currently seeing the most opportunity in emerging markets, with stock prices in China and others like it on the low side.

He is optimistic about the current US-China trade conflict. “There really should be a breakthrough because the cost for China and for the US is too great. It would be crazy not to reach a trade agreement,” he said, adding that if an agreement is made then the market will “really pop.” Masoudi noted that emerging markets’ stocks rose 3.6% on news that the two nations’ leaders, Donald Trump and Xi Jinping, had an agreeable phone conversation that investors concluded meant a resumption of trade talks. This was a hint of what would happen if there was a final trade agreement, he said.

To improve returns and mitigate risk, Masoudi pushed the alternatives portfolio toward lower fee structures and more transparent funds. One of these moves occurred three years ago, when the Wyoming organization ditched all its macro funds, which was good timing as they performed poorly afterward.

The Wyoming CIO takes pains to maintain trusting, transparent relations with the program’s board. A summary of the investment group’s weekly internal meetings, with a list of its current activities and plans, are sent to the investment committee.

“Now they feel like they have enough transparency into our activities that we don’t have to spend as much time explaining ourselves,” Masoudi said. That has made for significantly shorter meetings with the board.

“We used to have board meetings every month and they would last from six to eight hours long. And now we just have quarterly meetings that are four or five hours long,” he said.

Masoudi, a Denver native who moved back west from the Tulane endowment fund in New Orleans to manage the Wyoming Retirement System, feels the size of the fund is its best element.

“We’re big enough to get managers’ attention but not too big to invest in some of the smaller premier funds,” he said. “For instance, there might be a fund that’s only willing to accept $100 million in capital. We can make that investment, whereas if we were a $30 billion pension fund, we wouldn’t be able to.”

—Chris Butera

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