By Muskan Arora
CIO Steven Meier looks to Warren Buffet for
his focus on long-term outcomes, Ray Dalio for understanding debt and economic
cycles, Harry Markowitz for diversification and portfolio optimization, and John
C. Bogle as a pioneer in low-cost indexing when it comes to running the five
pension plans of the $294 billion New York City retirement systems.
Meier, who joined the pension plan nearly
three years ago, is responsible for maintaining the returns (net of fees) at 9.85%
per year, through November 2024.
Domestic equities have the most exposure in
the portfolio at 27%, the Mag 7 delivered returns of nearly 48%, as the CIO
predicts “we expect to see a widening out of companies benefiting from
artificial intelligence, both from a use-case basis and in terms of new
businesses developing.”
“I do think there are a lot of new companies
and many innovations in technology that are going to dominate and are not even
launched at this point,” said the CIO in an exclusive interview with MG.
Meier was one of the first few leaders in
the industry to identify AI as “transformational technology” and has been at
the forefront of both integrating and investing in AI.
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The systems are working towards an
increased allocation to the development of data centers both in the form of
clean energy and the infrastructure required. Further, the CIO is also
monitoring the developments in robotics and robotic technology.
With the second-time president Donald Trump
in power, Meier expects an increased expenditure in defense, especially
AI-designed weaponry, to be a big part of this year.
“Global and US GDP growth, productivity
gains, inflation, the level of government spending, and the amount of capital
investment from private sources are really going to drive the economy and
returns over time,” said the CIO.
Within its private market allocations, the
systems have most exposure to private equity at nearly 10% as of September 30,
as the pension plan continues to remain selective of the opportunities within this
space. The pension plan is currently expanding alternative investments from 25%
to 35%.
Meier believes stronger managers “don’t
rely on leverage or multiple expansion to drive value creation over time.”
The market is still working off leverage
that was taken on with zero interest rates. While valuations currently remain
somewhat stretched, the CIO has hopes PE exits pick up in the coming quarters.
“If I look at public equity returns over
the next ten years relative to private equity, I tend to prefer private equity
because it’s a better business model and cleaner alignment of incentives,” said
the CIO.
“Currently, the market is working off the
excesses that were built up from zero interest rates, a lot of leverage, and maybe
reliance on the part of some GPs on simple multiple expansion rather than value
creation through efficiencies and strategic direction. We expect private equity
returns to outperform public equity returns in the futures,” added Meier.
Heading a larger pension plan has allowed
the CIO to access better managers, negotiate better economic and legal terms, but
most importantly a healthy dosage of co-investments “that really work very
significantly to drive down carry expense and fees over time.”
Within the PE space, the CIO is bullish
towards GP-led secondaries through continuation funds.
“We really don’t do a lot of continuation
funds with our current partners because of the turnaround time. We’ve got five
boards and a four-to six-week turnaround on deals is hard for us from a
processing standpoint,” said the CIO.
Further, within the credit space, the CIO
is focused on multi-strat investment opportunities that can move in and out
depending upon relative value both in the public and private space.
The pension plan is also eyeing asset-based
lending, as a diversifier away from pure unsecured credit.
“I am growing concerned about direct
investing through private structures at this point because credit spreads have
become so tight. There’s so much money chasing the supply of credit investment
opportunities that you wonder, is it an imbalance that will potentially have a
negative impact on returns longer term,” said the CIO.
