The 2016 Innovators

Corporate Defined Benefit Pension Plan Above $5 Billion Robert Hunkler, Vice President, Investments Purchase
New York
Art by Thomas Fuchs

Robert Hunkeler does not invest in indexes. The broader investment industry might be increasingly shifting assets into passive management, but not International Paper. “We’re somewhat bucking the trend,” Hunkeler says. “It’s not that I’m anti-index, but I think there are ways in which we can add value above and beyond indextype returns.”

Hunkeler has been CIO at the paper and packaging company since 1997, putting him in charge of defined benefit (DB) and defined contribution (DC) assets in excess of $15 billion. And if his almost two decades in the role have taught him anything, it’s how to select active managers. As one CIO puts it, “he’s been particularly successful putting together active managers in interesting ways.”

Take large-cap US equities, for example. Even Hunkeler admits it’s “one of the more efficiently priced markets out there”—he’s got to index there, right? Wrong.

“We split our large-cap strategy into three buckets,” he explains. The biggest bucket is filled with quantitative strategies—call it enhanced indexing, if you must. The second bucket contains concentrated managers—those with highly concentrated growth or value portfolios. “Our belief is that to have any chance with outperforming with a more traditional stock-picking approach, you need to really concentrate your bets on your very best investment ideas,” Hunkeler says. The third and final bucket is portable alpha– combining a hedge fund portfolio with derivative overlay strategies. “In combination, those three strategies give us a reasonably good shot at beating what otherwise would be a very tough market to beat,” he adds.

So far, the fund’s dedication to active management has paid off. “Our excess return relative to the median peer in our universe over the years has helped us generate about $1.7 billion of added value to our pension plan,” Hunkeler says. “It’s been a significant contributor to what we do.”

And it’s not just the DB fund that’s actively managed. You won’t find many indexes in the DC plan either—or target-date funds, for that matter, but that’s a bone to pick for another day. Instead, Hunkeler and his team have designed International Paper’s 401(k) offering to include what they called “unitized funds-of-funds”—or what is now known as white-label funds. “We believe our best ideas are to be found in our pension fund,” he says. “So we wanted to be able to tap into those investments and make them available to our savings plan. And we did that by unitizing a number of the portfolios in our pension starting back in 2000.”

The DC plan is something Hunkeler is particularly proud of—in addition to the white-label funds, International Paper was an early adopter of tactics like auto-enrollment, auto-escalation, and robo-advice. But he hasn’t exactly been slacking on the DB side, either.

The $10 billion pension was one of the first to use asset-liability management techniques, starting on the liability-driven investing glidepath all the way back in 2002. And today the portfolio is “somewhere between a typical corporate and a typical endowment,” Hunkeler says, with a “fairly sizeable” allocation to alternatives.

As a CIO peer describes him, Robert Hunkeler is not one to be “overly influenced by the latest trend”—indexing included—but he’s certainly a trendsetter.

Amy Whyte

Corporate Defined Benefit Pension Plan Above $5 Billion Finalists

  1. 3M

    (Dennis Duerst)
  2. Boeing

    (Andy Ward)
  3. Ford Motor Company

    (Erin Rohde)
  4. Lockheed Martin Investment Management Company

    (Christopher Li)
  5. Nokia

    (Jeanmarie Grisi)
  6. Verizon

    (Brady Connor)
  1. Foundation
  2. Public Defined
    Benefit Plan
    $15b to $100b
  1. Endowment
  2. Public Defined
    Benefit Plan
    Above $100b
  1. Corporate Defined
    Benefit Pension Plan
    Below $5b
  2. Health Care
  1. Corporate Defined
    Benefit Pension Plan
    Above $5b
  2. Defined Contribution
  1. Public Defined
    Benefit Plan
    Below $15b