Bob Jacksha practices the art of pension investing from picturesque Santa Fe, where the scenery is captivating, the pace of everyday living is agreeable and his New Mexico Educational Retirement Board delivers solid returns. In fiscal year 2022, ending last June, many plans were in the red, but the ERB turned out a small profit. His 10-year returns are averaging 8.5%. That’s 1.5 percentage points over the plan’s bogey.

In 2007, Jacksha became CIO of the organization, which manages the pension plan for the state’s educators. Previously he served as the deputy CIO at the New Mexico State Investment Council. He is happy to be helping teachers. “They have an important and difficult job and are not compensated as well as they should be,” he says. “Anything I can do to help the status of their retirement gives me a great deal of satisfaction and pride.”

One innovation Jacksha has implemented is a shift into alternative investments from traditional stocks and bonds, which both performed poorly in 2022, a tandem correlation that seldom occurs. Now 69% of ERB’s holdings are in alts. The fund is underweight both equities and fixed income. Its standard deviation is in the lowest 5% of its peer group, while its returns are in the top decile.

What the plan needed, Jacksha figured, was a well-diversified, low-volatility approach. That meant moving into such categories as reinsurance, royalty streams, litigation finance and regulatory relief in the banking sector. The goal of these investments is “to structure a high Sharpe ratio portfolio,” he says, referring to the storied measure of returns’ relation to risk. “We have achieved that goal.” His is among the first public pension plans to invest in infrastructure and opportunistic credit, with private credit and direct lending following.

Jacksha calls this method “intelligent diversification.” The aim is to mitigate risk and, at the same time, log good performance. “We could have diversified by buying long Treasury bonds, but at 3%, or less at times [the 10-year Treasury note now yields 3.5%], that would not help us reach the required return target of 7%. The math simply doesn’t work.”

One canny move has been to hire what Jacksha calls an “overlay manager,” which oversees the plan’s asset allocation. This makes the whole investment process more efficient, he says. “With our large allocation to illiquid alternatives, rebalancing can at times be difficult in cash-only markets.” Part of the strategy is to use derivatives, increasing flexibility.

ERB makes use of consultants and outside managers to give it range, as when dealing with sometimes esoteric alts. The outside managers act like general partners running separate accounts, although in-house staff retains the power to overrule some investments. “We have used these accounts as introductory vehicles to gain access to managers otherwise unavailable to us,” Jacksha says.

This has been particularly helpful with venture capital, he adds, given that the New Mexico teachers’ fund is not large, with slightly more than $15 billion in assets under management.

“As a smaller pension fund, there are some investments and mangers we might engage with that large funds will not due to scale,” he says. “Larger funds have other advantages.” So a good idea, he reasons, is to “manage appropriately.”

His advice for other CIOs: “One of the risks that likely receives too much attention is personal career risk. Don’t be afraid to stand out from the crowd if you want to be successful. Being like everyone else means the median. And have fun.”

—Larry Light