Melissa Jerkins Quantitative Analyst III, Texas Municipal Retirement System Art by John Jay Cabuay
Melissa Jerkins

“Melissa has been a key driver in speeding up the development of many aspects of our incredible Risk and Analytics department. She expertly combines the technical skills from her physics Ph.D. and historical leadership positions with a deep understanding of investment matters and a natural communication style to drive understanding of complex topics across our wide spectrum of stakeholders.

Melissa has additionally improved the entire team here at TMRS by developing effective, healthy working relationships with everyone she interacts with while challenging us all with new ways to think about asset classes, risk, analytics, and portfolio construction.”

T.J. Carlson, CIO, TMRS

Melissa Jerkins is a Quantitative Analyst III at the Texas Municipal Retirement System (TMRS), where she is responsible for performing analysis pertinent to capital markets, portfolio construction, total fund level investment strategies and products, asset class risk, and quantitative manager evaluation.

During her six-year tenure at the fund, Jerkins has worked on a variety of projects that helped to improve and modernize the investment operations conducted by the staff. She was instrumental in redesigning the fund’s data visualization and transitioning the production of risk reporting from VBA to Python scripts, and she made heavy contributions to the transitioning of data from largely excel spreadsheets to a more modernized investment data warehouse that was internally built and maintained by the fund.

Prior to her current role, Jerkins completed a Ph.D. in high-energy particle physics and co-founded a startup company based on a medical isotope separation technology that she co-developed and patented. She generated an affinity for financial markets during her time at her company, and subsequently landed the analyst position at TMRS with no prior professional experience in asset allocation or economics. Jerkins earns a ranking in this year’s NextGen series following a most interesting career path and succeeding in her transformative missions at TMRS, ultimately making strides to help maintain financial security for the scores of beneficiaries the fund is responsible for.

CIO: What did you think you understood before the COVID-19 crisis … and if, during the crisis you were proven wrong, what did you learn from it?

Jerkins: I am part of the Risk Management department at a public pension fund, and prior to COVID-19 I thought I had a conceptual framework that included every major category of investment risk. I was certainly accustomed to evaluating high-severity, low-probability events; but I now realize that far from being low-probability, a deadly airborne virus that spreads around the world is a scenario experts were predicting was almost certainly going to occur, albeit at an unpredictable time. I had not considered such a category of severe negative events that are highly likely to occur at some point in the next ~100 years (but are unlikely to occur during any one person’s tenure). Perhaps such risks can be addressed with many of the same tools we use for black swan events, but I intend to spend more time in the coming months thinking about the potential misalignment of relevant risk management time horizons for an individual’s career vs. for the pension fund itself.

CIO: What took you by surprise? What worked?

Jerkins: As the COVID-19 crisis was beginning, our CIO asked us to assemble several very detailed reports related to daily cash flow monitoring and crisis period return estimation. Six years ago, such requests would have been extremely difficult because our data management was happening primarily on Excel spreadsheets and we did not have dedicated data analysts on our investment team. Fortunately, several years ago, TMRS decided to develop an investment data warehouse internally, which was an ambitious project that has been very successful. During the most volatile days of the COVID-19 crisis we were able to see a clear picture of the total fund due to our familiarity with our data, quick access to it, and ability to integrate it consistently across asset classes. I was still surprised, however, by how many different pieces of information we had to collect from multiple sources before we could answer every question we had about cash flows. Even given all the data management tools we have at our disposal, our four-person risk management team was very busy digging into data minutiae in the first few days of the crisis.

CIO: How would you build the portfolio differently now that you have gone through this massive accelerated shift in the market? 

Jerkins: We were already investigating dynamic asset allocation strategies before the crisis, but we had not yet reached the implementation phase. We had researched and rejected many approaches that did not fit our objectives, but we had also found a handful of promising strategies. Going through this crisis has only strengthened my interest in exploring how dynamic allocation can play a role in protecting against downside risk.

CIO: ESG has been a tidal wave force behind recent innovative investment framework in our industry. How do you see the ESG framework and effort be influenced by the recent event?

Jerkins: Everyone is currently making significant sacrifices in order to lessen the impact of COVID-19, and there are obvious parallels to the sacrifices societies should consider now in order to lessen the long-term impact of climate change. When we eventually transition into an economic recovery phase, however, I do not expect many governments or corporations will be inclined to make additional short-term sacrifices in order to alleviate long-term climate change problems. Despite our growing appreciation of the eventual danger, we will have overwhelming sacrifice fatigue. If environmental initiatives are going to be successful in the upcoming recovery phase, we have to find win-win solutions that are not only beneficial in the long-term but also create jobs and grow the economy in the short/medium-term. For those who simply want to attempt to underweight investments that are more exposed to climate change risk, ESG metrics may grow in their appeal; but I must admit I am skeptical of our ability to forecast which companies, countries, sectors, or regions will truly experience the most economically devastating ripple effects of climate change over the next few decades.

CIO: What’s your view on the “perfect storm” that is currently impacting the oil markets, and how will that change how you invest in upstream energy?

Jerkins: In the Risk Management department one of our key responsibilities is to develop a risk management framework that is integral to asset class teams’ decision-making process. The current risks in the oil markets are certainly unusual, but the process we use to evaluate and manage those risks internally is unchanged. While I don’t know exactly how our process will play out yet as it relates to upstream energy investments, I am confident that our risk management framework is sufficient to help our investment team make whatever adjustments may be necessary in the coming months.

CIO: What’s your view on the fate of the Euro and the EU?

Jerkins: I am skeptical that the European Union will be able to maintain a monetary union without deeper political integration, which will be difficult to forge given the historical and cultural forces pulling them apart. As we face the coming decade’s challenges of aging demographics, rising inequality within countries, increasing automation and AI, and negative impacts from climate change, it is hard for me to imagine European countries deciding to make significant sacrifices for the sake of deeper union (though I would love to be proven wrong).

CIO: What do you think will be the impact of COVID-19 on developing economies?

Jerkins: Developing economies will face a severe challenge from COVID-19 as exports decline, remittances diminish, and credit conditions tighten. Aggressive fiscal policy will be important for all countries in combatting COVID-19, but developing countries will have significantly less ability to fiscally maneuver and issue debt to smooth their road to recovery. Large-scale global collective action on behalf of developing economies could soften the impact of COVID-19, but in our increasingly divided world, I worry that the scale of cooperation needed to make a meaningful difference is unlikely.

CIO: What are the new creative/innovative strategies that you are researching right now?

Jerkins: We are researching a collection of ideas that we call Total Fund Strategies, which seek to manage crisis risk, dynamic asset class risk premiums, and foreign exchange risk. These strategies do not fit neatly within a single asset class, often because their desired impact on the Total Fund means that they should be sized in a way that does not align with a single asset class’s risk/return objectives. Of these strategies, the one I am most excited about exploring and the one I think has the biggest potential to benefit our portfolio is dynamic asset allocation. That may not necessarily qualify as a “new” idea, though I hope that the way we would go about implementing it would be not only innovative but also effective.

CIO: With the shakeout of industries currently going on—where do you see the most exciting opportunities in the future?

Jerkins: Several trends that were already emerging have been accelerated by COVID-19. For example, the pandemic has clearly accelerated society’s development of and dependence on digital infrastructure, though we were heading that way already. Another example is health care, which was already going to be an active sector with a lot of innovation given the global aging demographics; COVID-19 will accentuate that trend, while putting special emphasis on expanding our intensive care capabilities and developing treatments for potential future viruses. I am also expecting the combination of automation and AI to create significant disruptions and opportunities in the coming decade within certain sectors (for example, whatever food service businesses survive the current pandemic).

CIO: And professionally, where do you see the most exciting areas to specialize further over the coming years?

Jerkins: As someone who has spent only six years in finance, I still have a lot to learn about everything; but given that I specialize in investment risk management, data is the foundation of all my work. In the coming years, I anticipate continuing to learn more about data management – not merely flashy topics like big data or AI but the core principles of data governance and organization that underlie all of our attempts to draw meaningful insights from the ever-increasing quantity of data we have at our fingertips.

CIO: How is the quarantine affecting the way you view teams and working environments, such as work from home, meetings, etc.?

Jerkins: TMRS already offered the investment staff a lot of flexibility to work from home even before COVID-19, but in the Risk Management department we typically only utilized it when necessary. Our team consists of four people, and we share a single open office together. That environment fosters a lot of collaboration, creativity, question-asking, and integrated learning. For me, the current quarantine is highlighting how valuable our normal collaborative working environment is. Our team has talked about whether or not we anticipate working from home more often after the crisis ends, and for the most part, we do not. We feel that the time we would save commuting does not offset the productive synergy that comes from being in the same space together.

CIO: What exercises have you found useful?

Jerkins: Our work in risk management involves following current academic research (to the extent that we have time), as well as periodically building our own simulations to investigate specific questions. We are currently in the middle of an exciting project to explore illiquidity risk by combining a pacing model with a capital markets simulation. We have internally developed pacing models for capital calls and distributions for all our private asset classes, and we have purchased a simulation of the capital markets that is significantly more realistic than MPT. We are combining those two models to explore questions about the cost of illiquidity, the impact of various rebalancing tendencies, and the impact of liquidity stress tests. We have found the exercise of connecting a pacing model to a capital markets model to be very helpful in better understanding illiquidity risk.

CIO: Who is the manager you don’t currently work with whose brain you’d most like to pick for an hour?

Jerkins: The list of smart, interesting managers from whom I could learn a lot in an hour is almost endless, so my answer depends on what question I would most like to explore. Recently I’ve been thinking about the challenges faced by many pension funds in building healthy organizational cultures, improving governance models, and strengthening teams. Ray Dalio is someone who has famously built a distinctive culture that avoids many common pitfalls, so it would be interesting to learn from his experience. But if I could pick anyone’s brain for an hour, I’d sit down with someone like Brene Brown, who has worked with hundreds of leaders and organizations, to discuss the challenge of fostering constructive change within institutions.

CIO: And in a fantasy scenario, if money was no obstacle, where in the world would that meeting take place

Jerkins: In one of our homes; being in someone’s home helps you get to know them better.

CIO: What asset class or investment troubles you most right now—and why?

Jerkins: I’m a risk manager—it’s my job to worry about all of them.

CIO: Name your four-member investment dream team for your own family office.

Jerkins: It’s not my dream to have a family office, but if I were assembling a team, I wouldn’t focus on high-profile individuals (even if I could). I would prioritize finding people who are hardworking, conscientious, smart-but-humble, and enjoyable to be around. Honestly, that describes quite a few of the people with whom I work at TMRS, so I’d probably start recruiting there.

CIO: Describe the weirdest interaction you’ve had with an asset manager.

Jerkins: We asked a manager to provide a historical performance attribution analysis, and they sent us data that had such obvious, significant data quality problems that meaningful analysis was impossible. As we discussed the problems with the manager, we were forced to conclude that they did not use their performance attribution system for any purpose other than checking a box that indicated they had such a system.

CIO: What should be an investment trend, but isn’t (yet)?

Jerkins: I would like to see pension funds rely less on asset class silos and collaborate more explicitly on building a strong single portfolio. There are interesting investment ideas that sometimes fall through the cracks if they don’t fit exactly into one of the traditional asset classes.

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