The 2016 Innovators

LIFETIME ACHIEVEMENT HONOREE

University of Chicago

Mark Schmid, CIO

From Chrysler to Boeing to the University of Chicago, Schmid has brought innovative thinking and a focus on talent to every fund he’s led. And after more than two decades, he’s not done yet.

It was 2009. The University of Chicago endowment—like many funds at the time—had just suffered the worst single-year loss in its history, plummeting in value from $6.5 billion to under $5 billion. The university’s CIO of four years, Peter Stein, had announced his intention to step down that summer. If there was ever a time for a change, this was it.

Enter Mark Schmid.

The two-time corporate pension chief had already spent a dozen years as a chief investment officer—first leading Chrysler’s then-$30 billion in defined benefit and defined contribution plans, then running Boeing’s enormous pension as it grew to more than $80 billion. But in 2009, he was new to the endowment world.

“When I took the job, somebody said the phrase ‘higher ed’,” Schmid recalls over lunch at U. Chicago’s Quadrangle Club, chuckling to himself. “I didn’t know what ‘higher ed’ was.”

It is the last Monday of October, and the leaves outside the faculty club’s windows are gleaming copper and gold in the autumn sunshine. The Chicago Cubs are just two games away from clenching their first World Series win in 108 years, and even at the University of Chicago’s Hyde Park campus—placed firmly in White Sox territory—the excitement is palpable.

Just like that summer of 2009, it is a time for change: changing seasons, changing luck in baseball, and—as the US presidential elections draw to a close after nearly two years of campaigning—a changing political climate. American investors are speculating that another interest rate hike would finally come in December (Schmid, emphatically: “Raise them!”); Europeans are guessing at the consequences of Britain’s summer decision to exit the European Union.

But amid all of the uncertainty, Schmid is cool, calm, and collected. After 14 positions at four employers across two countries, he’s not afraid of change. Schmid didn’t receive what one might consider a classical education in investing. He went to the University of Detroit Mercy in 1977 to study accounting, earning his CPA certification and going straight to KPMG to work as an auditor. When he moved to Chrysler in 1986, he originally intended to do more of the same. But the automaker at that time was very focused on mergers and acquisitions, and the corporate accounting department to which Schmid had been appointed was often working closely with the treasury group on due diligence.

“We were valuing companies, doing M&A stuff,” Schmid remembers. “That’s when I started to look around and think, ‘Wait a minute, I like treasury, I like M&A, I like markets. I want to do this.’”

From there Schmid rotated through a variety of positions within Chrysler’s accounting, finance, and treasury departments—an early-career learning experience that to this day informs his talent development philosophy (“If there’s a secret sauce to success, it’s that you’ve got to move around,” he says). Eventually he landed as director of regulatory reporting, a position that placed him in close contact with the treasurer at the time, Tom Capo. It was Capo who would give Schmid his first job managing pension assets: head of treasury at Chrysler Canada.

“That’s really where it all started,” Schmid says.

As treasurer at the automaker’s Canadian subsidiary, Schmid crossed the border daily from Detroit to Ontario, where he led a sizeable staff of treasury professionals. By that time, he’d earned an MBA from Wayne State University and had worked in finance for more than a decade. But until that point, he’d never held a real investment position.

“All my CIO training has been on the job,” Schmid continues. “Starting out as the Canadian pension manager, I had to learn everything on the job.” And the learning curve would only grow steeper. When Chrysler CIO Russ Flynn retired just a few years later in 1997, Schmid was tapped for the role—and was immediately faced with two major hurdles: the 1997 emerging market crisis and Chrysler’s 1998 merger with Daimler-Benz.

“CIO at Chrysler—that was a really fun job,” Schmid says. “I had a really small team so it was just four of us trying to manage $30 billion.”

That team of four was immediately put to work on the pension aspect of the Daimler-Benz merger. At that time, Chrysler’s defined benefit plan enjoyed a surplus of assets, but the German automaker’s plan was just 28% funded. While the two funds would remain separate entities, Schmid, as CIO at the newly formed DaimlerChrysler, would meet with his new German colleagues to talk strategy.

The presentation Schmid and his team put together would come to be known as the “risk book”—a detailed guide on the pension risk management process. “It was all the good fiduciary things that you should do but that wasn’t written down anywhere,” Schmid explains. “We wrote it all down, we put it in this big book, and we brought it to Germany. They liked it so much, they designed their entire pension process based on our risk book.” Schmid was even appointed to the Daimler-Benz pension investment committee—the only American on it. “I went from a Canadian pension manager learning on the job to the US CIO to this global role overnight,” he adds.

Eventually, after 17 years at the automaker and six years as its CIO, Schmid’s Chrysler education was over. It was time for another change.

“He takes the approach of finding the best talent and the smartest people he can find for his team, and then he gives them a lot of rope.” 

In 2003, an executive recruiter came calling to gauge Schmid’s interest in a new job that was opening up: CIO of Boeing’s more than $50 billion in retirement assets. The former investment chief, Susan Manske, had left in April to join the John D. and Catherine T. MacArthur Foundation, and the aerospace company was looking for a new leader to build out its internal investment expertise.

“The best piece of advice I ever got was ‘never say no,’” Schmid says. “There was a guy at Chrysler–really smart, had one of those big offices with mahogany furniture. And he just seemed to know everything. So one day when I was in his office I asked him, ‘How do you know all of this stuff?’ And he said, ‘I just never say no. When you work at a big company, everybody says no because there are so many people and everyone has their own projects to worry about. But I didn’t do that. I always said yes. And every time I said yes, I learned something new.’”

So Schmid said yes. The then-43-year-old, along with his wife and five children, packed up and moved from Schmid’s home state of Michigan to Chicago, the city to which Boeing had also just relocated. “Taking a risk on a new job, making a big move–it can be scary,” he says. “I didn’t know a single person in Chicago.”

One of the first people he remembers getting to know was Will McLean, the CIO at Northwestern University’s then-$3 billion endowment. “I had the pleasure to watch Mark in action at Boeing,” McLean says. “Nothing ever got him too ruffled; I’ve never seen him get emotional or angry at anything. He’s a solid guy with a lot of confidence—and it rubs off on his team.”

Building the investment team was one of Schmid’s first responsibilities at Boeing. When he arrived, he was presented with a staff of six responsible for $55 billion. Over the next six years, he grew Boeing’s investment program into a team of 20 managing more than $80 billion.

“He takes the approach of finding the best talent and the smartest people he can find for his team, and then he gives them a lot of rope,” says Doug Brown, CIO at Exelon. “That’s been a successful formula for him.”

Brown would know: He was already at Chrysler when Schmid joined in 1986, and the two had work closely together during their time at the automaker. Brown followed Schmid into the treasurer role at Chrysler Canada before taking charge of the corporate finance and capital markets department in the early 2000s. “We were peers,” Brown says. “We worked together a long time.” When Schmid left for Boeing, Brown was the obvious choice to succeed him as CIO.

“One of the things I’m most proud of at Chrysler is that I built a team that really stood the test of time,” Schmid says. “We did a really good job training people and moving people around.” Brown served as Chrysler’s investment chief from 2003 until 2009, when he left to take the CIO role at Exelon. He was then succeeded by Bob Watson–another long-time colleague of Schmid.

And three more Chrysler staffers went on to become CIOs at funds of their own: Robert Manilla at the Kresge Foundation in 2005, Jay Laramie at PepsiCo in 2009, and Paul Cavazos—after working under Schmid at both Chrysler and Boeing—at DTE Energy in 2007 (he then joined American Beacon Funds in 2016).

“Mark’s a good mentor to people,” McLean says. “He’s good at developing talent.” At Boeing, one protégé-turned-CIO stands out in particular. Andy Ward, the man who eventually succeeded Schmid as Boeing’s investment chief in 2009, was a 32-year-old running alternative investments when Schmid came to the fund in 2003.

“I was this young investment professional worrying about my new boss—just laying in bed at night imagining this fire-breathing dragon coming in and taking over as the CIO,” Ward remembers. “Lo and behold, the fire-breathing dragon ended up being Mark Schmid—and my worries could not have been less founded.”

The two quickly became close, with Ward seeing Schmid not just as his boss, but as a mentor and close friend. Schmid convinced Ward to take the CFA exam (“Andy, being the great guy he is, passed it in one try,” Schmid brags) and promoted him to the fund’s chief strategy role—essentially making Ward his right-hand man.

“At the time, I was very hesitant,” Ward says. “I was very comfortable and confident in the role that I had, and—like everybody—feared that maybe I wouldn’t be good at the strategy job or that I wouldn’t like it. But Mark talked me out of those fears. He told me it would be a great move that would benefit not just the plan and our organization, but also me as a professional—and he was absolutely right.”

Together, Schmid and Ward developed a groundbreaking strategy for Boeing’s pension: a hybrid asset-liability management/endowment model focused on hedging against the fund’s liabilities while still targeting growth through a combination of equities and diversified alternatives. “We took the risk book from Chrysler and blew it out,” Schmid says. The new strategic allocation was fully implemented by late 2007—and was immediately put to the test.

“We had talked about how our strategy would protect the company from downside risk—and that scenario immediately played out with the great financial crisis,” Ward recalls. “It was of those are instances where the strategy’s pros and cons played out right in front of us, and to our benefit, the pros far outweighed the cons.”

By 2009, Schmid had proven himself not once, but twice: reinventing the investment process at both Chrysler and Boeing and building risk management programs from the ground up while developing a deep bench of investment talent at each organization.

Leaving Boeing in Ward’s capable hands, Schmid said “yes” once more—to the University of Chicago endowment.

To his brand new staff and investment committee, Schmid was the ‘corporate guy.’ His investing background up to that point had consisted more of asset-liability matching than Ivy League return chasing. But after his time at Boeing—building out the staff, creating the new hybrid strategy—Schmid was up to the challenge.

“Running a pension and running an endowment are more similar than different,” he says. “We don’t have the defined pension liability with mortality tables and all that, but we do have a requirement to pay out 5% of the endowment every year in perpetuity.”

And so Schmid approached the university’s then-$5 billion endowment the same way he approached Chrysler and Boeing’s pension funds–with risk management in the driver’s seat.

First, he identified the constraints facing an endowment. “Turns out university fundraising is really correlated to the stock market,” Schmid says. “You have way more equity exposure than you realize.” With these limits in mind, he determined how much illiquidity risk and equity risk they could take without threatening that 5% cash flow promised to the university—both in the long term and the short term. “We dialed those risks back to more reasonable levels,” Schmid continues—decreasing the equity allocation from 90% to 75% (including private equity and private real estate) and lowering the illiquid portion of the portfolio to 35% from 45%.

“He took the full university financial circumstances into account in crafting and thinking about investment planning,” Northwestern’s McLean says. “As a University of Chicago alum,” Ward adds, “I’m very proud to have Mark there doing great things for the university.”

Schmid, of course, says he couldn’t have done any of it without his team. All of the fund’s managing directors, he says, “could be CIOs anywhere right now”—and Mike Edleson, who Schmid brought in as chief risk officer when he first started at the University of Chicago, “makes the Chrysler risk book look like little league next to Major League Baseball.”

“I’ve been here seven-and-a-half years now, and it’s been so great to be at this university and work with such smart people,” Schmid says. It seems third time is the charm for the veteran investment chief. After 35 years of saying yes to change, he plans on staying at the now-$7.5 billion endowment “as long at they’ll have me.”

“I’ve had a charmed career,” Schmid says as the Quadrangle Club waiters come to take away the empty plates. “The fact that I somehow landed in investments—I couldn’t have asked for anything better. The people you work with are really accomplished people who love what they’re doing, and there’s always something new to learn. Being a CIO it’s hard, but it’s not work.”

Amy Whyte

  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