November 23, 2021

Paul Colonna: The Perfect Fit for a Big Company CIO Job

Sporting good returns, Lockheed Martin’s investment chief prepped at State Street and General Electric.

Reported by Larry Light

Paul Colonna

If anyone was prepared to oversee a large corporate pension effort, it’s Paul Colonna.

For the past three years, he has presided over Lockheed Martin’s retirement system, de-risking much of the defined benefit (DB) plan and streamlining the defined contribution (DC) program. Along the way, he has posted good returns for the investment portfolio, which is up an annual 13.5% over three years, 1.6 percentage points above the benchmark, placing it in the top decile of corporate pension funds. The DB plan has $35 billion in assets and the DC one has $50 billion.

His last port of call was at State Street Global Advisors, where he served as executive vice president and CIO of fundamental equities. At State Street, he managed $30 billion in assets and an 80-member team. Before that, he was president and CIO for public investments at GE Asset Management, managing more than $100 billion in public fixed income and equity assets. “I like working for big companies,” Colonna remarked cheerfully.

As the new president and CIO of Lockheed Martin Investment Management Company, Colonna set about “looking at portfolio construction” with “mitigating risk” in mind and an eye for good returns. On the de-risking front, he is reducing the size of the pension plan’s public stock holdings, now 40%. This is all in service to the precepts of liability-driven investment (LDI) practices.

“We needed to look at liabilities,” what the plan has to pay out to beneficiaries at some point, he said. He aims to boost fixed-income exposure, but is “waiting for higher interest rates,” which the Federal Reserve should start delivering before too long.

He revamped Lockheed Martin’s hedge fund lineup and pared those outfits that weren’t performing well. Returns from the hedge assets improved to the 6% to 8% range, from 4.5% previously—“and saved us some fees,” he said, due to fewer funds in the roster. The company’s $3.5 billion hedge fund strategy ranges the gamut, including long/short equity, credit, and merger arbitrage. Getting into the hot arena of private equity, Colonna has struck co-investing deals with other allocators.

Colonna says he is proud that “we believe here in active management,” with the intent of “bringing the greatest outcome” for Lockheed Martin beneficiaries. That all is possible, he said, “because of the breadth and skill of our team.” In the past quarter, according to financial data site WhaleWisdom, the portfolio had a 14.6% turnover, hardly a meme-investor clip, yet a sign of actively seeking opportunities.

He also has a significant real estate commitment, with Lockheed Martin’s second biggest holding the iShares US Real Estate exchange-traded fund (ETF) at 8.5%. The largest asset under management is the Vanguard Total Bond Markey Index, at just under 9%. There’s also an internally managed balanced risk strategy that take positions among stocks, bonds, and commodities.

Since 2019, the company has shed some liabilities via pension risk transfers, some 60,000 participants in deals with Prudential, Athene, and Met Life. (The Lockheed Martin treasurer’s office does the transfers, and the investment team supports the effort.) Right now, 160,000 people are still in the Lockheed Martin retirement program. Before Colonna’s arrival, Lockheed closed its DB plan to new entrants and froze benefit accruals.

Colonna also revamped the company’s DC effort. “We wanted to make it the best in class, by bringing in some of the best thinking from DB [practitioners],” he said.

He felt that the offerings were too many and too confusing to people. So Lockheed shucked options such as high-yield bonds that “people did not use”—reducing the options to nine from 18. A lot happens in-house. For target-date funds (TDFs), where the asset allocation grows more conservative as one ages, Colonna’s team and not outside managers “constructed the glide path,” i.e., the timetable to move to less-risky from more risky securities.

In January 2019, Colonna succeeded Chris Li, who retired after 11 years at the head of the company’s investment arm. “Lockheed was a great fit,” Colonna said.

He was a business major at Villanova and went on to collect an MBA from the University of Maryland. He spent nine years on the mortgage-backed securities (MBS) desk at Fannie Mae, aka the Federal National Mortgage Association. At General Electric’s asset arm, he became adept at leading investment teams and was put to the test, and then some, during the 2008-09 global financial crisis.

Having grown up in the Washington, D.C., area, taking the job at Lockheed Martin (which has its headquarters in Bethesda, Maryland) was a homecoming. “Lockheed Martin was the logical place for me to be,“ he said.