After
almost a year of internal and external investigations, and a national CIO
search since May, The Pennsylvania Public School Employees’ Retirement System
(PSERS) has hired new chief investment officer Benjamin Cotton.
He started work January 17, taking
over for Bob Devine, who served as interim Chief Investment Officer during the national
search for a new Chief Investment Officer upon the retirement of James Grossman
in May, who had worked for the fund for 25 years.
Cotton
will oversee its $71.2 billion in AUM through its investment office of 65
internal investment professionals and staff as well as its external consultants
and managers. His salary is $515,000, with
a one-time $10,000 quality assurance payment, according to a statement
issued by the PSERS.
A
U.S Marine veteran who comes from a strong investment background in the
automotive industry, Cotton most recently worked as a senior managing director
for the United Auto Workers Retiree Medical Benefits Trust, which invests and
administers healthcare benefits for more than 800,000 automotive industry
workers and their eligible dependents. As a founding member of the
Trust’s investment team, he helped to expand and grow its assets from $40
billion at inception to over $60 billion, while providing more than $2 billion
net annual healthcare benefit payouts. He also managed the investment
team for public equity, fixed income, credit, cash, and derivatives, and led
various private asset and hedge fund underwritings.
Before
that, Cotton also worked for the Ford Motor Company, helping to manage over $55
billion in pension, insurance, and cash-related investments. He also
worked from London, leading the audit teams for Ford Credit in Europe and Asia
Pacific, and, from Hiroshima, where he facilitated improvements to financial
reporting controls for Mazda Motor Corporation in Japan, North America, Europe,
and Australia. Upon returning to the United States, he also managed
Ford’s foreign exchange, commodities, and derivatives trading team and managed
the team responsible for overseeing Ford’s securitization-related reporting
processes.
Cotton
most recently completed a doctoral program on Leadership and Learning in
Organizations through Vanderbilt University’s Peabody College in December, and
graduated Summa Cum Laude with a bachelor’s degree in Business Administration
and Finance from Midwestern State University in Texas. He holds both a master’s
degree in International Management from the Thunderbird School of Global
Management at Arizona State University and a Chartered Financial Analyst
designation.
A
Michigan resident, he served in the Marine Corps from 1988 through 1992,
including service in Saudi Arabia and Kuwait during Desert Shield and Desert
Storm.
PSERS Board Chairman Chris
Santa Maria commented that he was “extremely happy and proud” that Cotton
accepted the position. “Ben’s military experience, combined with his corporate
and international investment and finance expertise, stood out during our search
and interview process,” he said through a written statement.
Cotton said he was “humbled”
by the board’s faith in his abilities, and said, “It’s an honor to join
one of the nation’s oldest and largest public pension funds,” noting that
he was drawn to the job because of “the Board of Trustees’ dedication to
continuous improvement to keep the system healthy and viable for over 500,000
public school employees and retirees.” June numbers show PSERS 248,000 active,
247,000 retired school employees and 27,000 vested inactive members.
The
Controversy Resolved
The
fund faced some controversy when a reporting error on the fund’s performance caused
all its public school employees hired on, or after of July 2011, to contribute extra
funding when they didn’t need to. The error was small – a third of a percentage
point – but it was right around the 6.36% threshold that would have triggered
additional contributions by state law. Aon took responsibility for the error, sending
PSERS two memos that it was a “clerical mistake at a data entry level.” Upon
investigation by multiple entities: the law firm hired by PSERS, Womble Bond
Dickinson, as well as The FBI , the U.S. Department
of Justice, the PSERS staff was cleared of any kickbacks, illegal
activities or wrongdoing. (A Securities and Exchange Commission investigation
is still ongoing.)
Investigators for Womble Bond wrote,
“We found no evidence of
any kickbacks or any illegal payments. We found no evidence of theft. We found
no evidence of self-dealing. We found no evidence of false statements or
misleading statements in financial transactions.”
Industry
insiders say the error could have been caused by a typical lag in data
reporting. Typically, estimates that might be a few basis points shy of real
returns are reported for annual reports, but the real performance numbers and data
reporting on assets such as private equity can be months behind.
CIO James Grossman transitioned to
senior advisor on December 9, 2021, and retired from his 25 year tenure at PSERS
on May 1, 2022. The Womble Bond report was released January 31, 2022, and PSERS
announced on Aug 2, 2022 that the Department of Justice investigation had been
closed.
As a chief investment officer and
senior advisor, Grossman was cleared of all wrongdoing, and is still highly
regarded by his CIO peers as a thought leader and is known for beating
benchmarks for the PSERS plan consecutively for more than a decade. For the
period ended June 30, 2022, PSERS 1-year return was 2.23% (vs. policy benchmark
of -0.18% and Aon’s public pension peer group median investment rate of return
of -7.21%.,) 5 years was 8.46% (vs. 7.66%) and 10 years was 7.91% (vs.
7.36%). For the period ended March 31, 2022, 1-year was 16.75% (vs.
12.84%); 5-year was 10.17% (vs. 9.57%) and 10-years was 8.60% (vs.
8.14%).
By Christine Giordano