(August 21, 2013) – The investment director of New Jersey’s public pension system and former CIO of the Indiana teachers’ retirement fund is moving into the private sector.
Tim Walsh has been at the helm of New Jersey’s $74 fund for three years, and drawn significant acclaim for his tenure there. Friday, August 30 will be his final day as director.
The following Monday, Walsh will start as the Chicago-based president and chief operating officer of Gaw Capital North America. The Chinese-owned real estate investment firm plans to build a property fund of roughly $500 million.
Walsh, who was the subject of aiCIO’s February 2013 cover story, spoke to Managing Editor Leanna Orr about his decision to depart the New Jersey fund, and public pensions as whole.
aiCIO: Tell me about your first day at New Jersey.
Walsh: It was a bit of a culture shock, coming from a much smaller plan in Indianapolis. It was $7 or $8 billion, and all outsourced. New Jersey was much more detailed in the investment space: trade tickets, liquidity, that sort of thing. You take it for granted when you have a manager to outsource those things to.
There was also the enormity of size: I went from $7 billion to $70 billion. A $20 million trade at Indiana Teachers would not even move the needle at New Jersey: You’d have to do $200 million. But that didn’t take as long as you might think to adjust to.
Of everything you did at New Jersey, what are you most proud of?
Someone actually asked me that today—another CIO in fact. First of all, the returns have been quality. They are not number one [among the fund’s peer group], but on a risk-adjusted basis, they’re good. We beat our benchmark all three years since I’ve been at New Jersey, and have a total return of close to 400 basis points above the benchmark.
Second, we’ve got a very harmonious board, where everybody is pulling together. We have a very good board—I’ve said it before. They are always working for me, for the investment staff, and for the fund. There can be a lot fighting among public trustees, but not in New Jersey. They deserve a lot of credit.
Number three, we have done a lot of operational improvements that ought to have been done ten or twenty years ago.
The fourth would be the work we’ve done on fees and alignment of interest. I try not to focus just on the fee side, but rather alignment in our relationships with managers. The things we did with Blackstone and with Och-Ziff were very innovative, I think. That wasn’t just me: it was also the staff, Bob, and the board.
What are you going to miss?
The one thing I’ll miss most are some of my co-workers. There are some incredible people there—those who are smart, fun, and working their tails off. Another one of the main attractions I had for the job was the internal management aspect: I like being able to, for example, work with the fixed-income guys on duration, come up with a strategy, and have it in place by the end of the week. I’ll miss being involved in IPOs, stock selection, asset allocation, options, and working with some of the smartest managers in the world. Also, meeting with other CIOs. I had lunch today with one of them. It’s a nice little club: You can discuss about some really high-level topics.
Why Gaw Capital, and why this position?
Good question. I think it was the right time for both of us. They are very entrepreneurial, with a track record going back 22 years in the United States, which is pretty unusual. They’ve done some interesting stuff in Chelsea, are working on a couple of things in Chicago, and have a number of properties in downtown Los Angeles and San Francisco. Over the last 22 years, they have touched locations all across the United States. I’m an entrepreneur at heart, and I love real estate. I think it’s a great fit.
None of your strategic partners tried to poach you?
If you’ve made a big investment with someone, it is hard to go work for them after that. Number one: There are state ethics to uphold.
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Bob Grady, the board chairman, has said since your resignation that you are enormous talent and losing you is a signal to reexamine the compensation structure for your position. Do you think anything will change?
I hope so. Incentives work—whether it’s in football or on Wall Street, incentives work. The majority of public funds already have compensation tied to performance for their CIOs or senior investment staff.
How is the New Jersey pension fund different now from when you started?
One of the low hanging fruit that we tackled was on the operational side. There is the big fund—$75 billion or so—and then a number of smaller funds. Previously, you could not move money from one to another after the 15th of the month due to regulatory issues. And we changed that. It’s so simple, but let’s say bonds drop on the 20th of the month and they’re a good buy. In the old days, even if there was $2 billion in the account, we couldn’t do anything about it.
This change has allowed us to keep our cash balances about $1 billion lower than in the past. We are up about 30% over the last three years, and 30% of $1 billion is $300 million. It’s small things like that, but they add up at the margins. Hopefully, they make things easier for the employees and make better returns.
The other thing we did was take the silos away. Certain people worked in hedge funds, others in private equity, and no one really talked to one another. Now, if we see a real estate credit opportunity, it may be covered by both the real estate and the credit people. There wasn’t any interplay before. Part of this is having a small staff, but part of it getting rid of the silos. I am proud of it. Some other funds are starting to do this, but we moved fairly quickly on it.
Is there anything you wanted to do, but didn’t?
Modernizing the RFP process is certainly something that took longer than I expected it to, and longer than I would have hoped. That said, I expect it to be done in September—after I’m gone.
Having followed the fund over the past year, one thing I’ve noticed is how close the team seemed to be. Christine Pastore [former alternatives head] and Bryan Martin [former real assets head] even up turned up for your annual meeting in January.
Especially in alternatives, there is a very good esprit de corps at New Jersey. Christine [Pastore] started there in 2005 and was key in building the alts section. I think it gained a pretty good reputation for making smart investments and doing their own due diligence. I will miss a lot of things about it. There are a lot of people there that I care about.
When did you break the news to your team?
On Friday. I was choked up when I told the senior staff. And as my wife will attest to, I don’t choke up over much.