2019 Industry Innovation Awards

Corporate Defined Benefit Pension Plan Above $20 Billion

Dow Chemical

Rob Sparling, Chief Investment Officer
Rob Sparling
Art by Nigel Buchanan

Rob Sparling has been chief investment officer for the Dow Chemical Company pension since 2015. It’s the pinnacle of a decades-long career at the company, where he has worked in a variety of financial and risk management roles. In many ways, Sparling is a product of his environment. When he talks about his approach as an allocator, he sounds a bit more like an engineer trying to find the most elegant way to solve problems than an asset manager.

“I’m a quantitative person who is curious,” he says. “I try to make objective observations about risk/reward and make active decisions favoring investment choices where we feel the risks are better compensated. That’s also a risk management culture we try to cultivate internally at Dow.”

Dow’s pension system is large, covering tens of thousands of employees, and is well-funded. Sparling’s investment team is also large and diverse. Members of the investment team often transition on to other groups as part of a broader corporate culture designed to give employees a varied professional experience. As a result, Sparling spends a lot of time focused on team culture and streamlining allocation. It’s led to significant innovation within the pension.

“We have a fairly big team relative to our peers and as our company continues its transformation, we’re embracing the opportunity to create the best culture, cultivate the right kind of talent, and to incentivize them to make strong investment decisions,” Sparling says. “That’s something I’m focused on and we’re always looking for ways we can create the best possible scenario for our staff and for our portfolio.”

Sparling wants to encourage collaboration and robust debate, but also wants to ensure consistency in the investment process. To do this, Sparling created a liquidity pool within the pension’s investment portfolio which is designed to decouple the day-to-day cash obligations of the pension from investing The liquidity pool was borne out of a desire to create consistency. Prior to its creation, the pension would make an allocation to a strategy only to pull part of it back again to cover pension payments. The pool holds approximately six months of benefit payments and is constantly replenished. What’s leftover is what the investment team puts to work. “It turned out to be a win-win because we are not adversely affecting the alpha generation of our active managers,” Sparling explains.

The liquidity pool has had an impact on the culture of the investment team as well. Members of the team can now identify specific opportunities or craft investment theses that they can see through to the end at a stable ticket size. This supports long-term thinking and ensures that there is a roadmap in place as members of the team cycle through. Sparling adds that it improves the quality of investment opportunities as well because the pension is a stable counterparty.

“You have to look yourself in the mirror and think about did you search for and ultimately find the best possible opportunity set for your portfolio?” Sparling says. “I try to encourage my team to find the best opportunities and make collaborative decisions that everyone understands.”

Creating a culture of collaboration will be important as the role of the CIO evolves, Sparling says. He has already noticed changes in his role and in asset management broadly. To navigate these shifts, the investment team will need a coordinated response. “The evolution we are all observing is the trend toward defined contribution plans across the board. The key going forward and what we have to do as a team, is focus on finding the best options for participants. As institutions, we have buying power, negotiating power, and expertise where we should be able fight for better terms and better products for our participants,” Sparling contends. “Another obvious trend is LDI in defined benefit plans—we’re waiting for the right opportunity to start that. Where interest rates are right now, we don’t feel like there is the right risk/reward trade-off.”

Sparling’s willingness to buck trends makes him a contrarian and innovator among his peers. He could transfer the risk, simplify the menu, and move on like many corporations have already done. Ever the engineer, Sparling views his role differently. He’d rather spend time thinking through plan improvements—including leaning on the vast network of technology expertise within Dow to find ways to leverage technology to improve investment decisions. The key for him is to ensure that participants continue to trust him and the investment team to do what’s right for what they’ve earned over the years. “My retirees are my customers and I think about that a lot. It keeps me motivated,” he says.

Bailey McCann

Corporate Defined Benefit Pension Plan Above $20 Billion Finalists

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