By David G. Barry

Amy C. McGarrity is in her fifth year as chief investment officer of the Public
Employees’ Retirement Association of Colorado (PERA), which manages more
than $76.8 billion in assets on behalf of nearly 650,000 members. McGarrity has
spent the bulk of the past 12 years with PERA, having joined it in 2010 after
the Denver Public Schools Retirement System – where she was CIO – merged with
PERA. In an interview with Markets Group, Amy discussed her journey to become
PERA’s CIO, the challenges of the past two years, and why adding chief
operating officer to her responsibilities made sense.

Markets Group: Amy, let’s start with how you ended up
in the financial world.

Amy C. McGarrity: When I was in high school, my dad encouraged me to
participate in DECA (Distributive Education Clubs of America) and I was pretty
successful at competing in a category called Finance and Credit. At the same
time, I was pretty good at math. So, when I was thinking about what to do in
college, my dad encouraged me to go into finance. Normally, I don’t think when
your parents encourage you to do something in college, that it works out. But
for me, it did. Initially I was a piano performance major. I did that to pay
for school. I had a full scholarship at the University of Wyoming for piano,
but I knew I wanted to major in finance. So, I switched my major. Finance has
always been something that I’ve loved and been interested in.

MG: Do you still play the piano?

ACM: I do still play. I taught both of my daughters to play, and neither
of them play now, which is pretty funny. Of course, they don’t. They had a bad
teacher. But I do play, but it’s not like riding a bike. I played for 13 years
and was quite good at it. I’m not good at it anymore, so it can be very
frustrating like anything in life that you’re not great at. It’s not like
eating your vegetables, but it is a good release. In my teenage years, I would
go play the piano to kind of just get in my own head and express myself. So, I
do use it as a stress relief and just a way to do something fun for myself. I’m
just not very good at it. There’s not going to be any concerts anytime soon.

MG: Describe, if you would, your journey to becoming
CIO.

ACM: That’s been an unexpected gift. Frankly, one can only characterize
my career success as a lot of hard work, but a lot of luck along the way. I
started out working in essentially the back office of a hedge fund. I went from
Wyoming to New Jersey, and while working at a hedge fund, I started going to
grad school at night part-time. Ultimately a few years later, I achieved my MBA
and went into consulting, which was an interesting journey. I worked in the
Princeton (N.J.) office of a consulting firm (Mercer), and then they closed
that office. So, I transferred to the New York City office, which was an eye-opening
experience for me. I think that really contributed to my ability to effectively
communicate with a lot of different people. I mean, it’s very different from
growing up in Wyoming and I think it was a great experience for me. And just
again a gift. I then transferred to the Denver office, and they closed that office,
so I went Buck Consultants. That is where I was when I ultimately got the job
at Denver Public Schools Retirement System (DPSRS) as an investment officer and
then subsequently became their CIO.

MG: What led you to apply for that Denver Public Schools Retirement Job?

ACM: That was really through an encouragement of another consultant at
Buck, who worked closely with DPSRS. He knew the people there and he just felt
like I would be a good fit and that it would be a different side of the table
(the plan sponsor side) for me. And it turns out he was right. It was a great
experience. And then we were ultimately acquired by PERA in 2010, or we merged
with PERA, which I guess is a more accurate way to describe it. And again, it was
just incredible luck along the way. The legislation that merged DPSRS with
Colorado PERA required PERA to maintain their employees. We were very nervous
and there really wasn’t an actual place for me because I was the CIO and they
already had one of those. So, about six months into my stint, I was afforded an
incredible opportunity to work with the equities team, which I still do as much
as I can. It’s my passion. I love investing. I then finished up my CFA charter
there in 2011 and became the deputy CIO in 2013. In 2017, I became the CIO.

MG: So, it sounds like the merger between the DPSRS and PERA worked out
OK for you?

ACM: Honestly, I was reluctant with the merger with
PERA. I was nervous. I was satisfied with my role at DPSRS. But becoming an
equities portfolio manager is an opportunity that I would never have thought
would have been afforded to me in my wildest imagination. So, it’s just been an
incredible ride.

MG: Is there a lesson that sticks out from your career
to date?

ACM: It’s been a journey. If I had advice for people, I would say accept
risks, take chances and work really hard. I think nothing substitutes for hard
work. I think it gets noticed. And then you maybe get opportunities – or luck
as I call it – that wouldn’t be afforded to you if you hadn’t worked hard, if
you hadn’t shined or put your neck out there a little bit and taken some
initiatives. So those are some of the things that I’ve learned along the way.
I’ve also learned candidly as a full-time working parent that it is difficult
to have it all. I grew up with my mom and dad saying you can have it all and I
don’t know that’s the case. I don’t think it is. But I have spoken with another
colleague, and she shared with me that “you can’t have it all at once.” So
maybe that’s the case. I don’t know. It’s a balance because that hard work
takes a lot of time. If you’re entertaining outside activities like a family or
whatnot, it’s sometimes difficult to find balance.

MG: What appealed to you about becoming CIO of PERA?

ACM: Number one, it’s the team. It’s an amazing team
of people, not just in investments, but throughout the company. We have about
60 people in the investment department, and these are people who have worked at
prior investment management firms outside of PERA. They have deep expertise.
Again, I can learn from all of them. The collaboration and the mind share that
goes on…so that’s been great. I also work for an executive director [Ron
Baker], who has a vision of entrepreneurialism, which I think is unusual in the
pension plan space. So just as Colorado PERA is unique in our investment
management capabilities, I think we have the tone at the top that really drives
innovation and a spirit of collaboration. And so, it’s just an exciting place
to be.

MG: What have you attempted to do/change while CIO at PERA? Markets
Group has written about PERA’s “unitization
project,” aimed at giving participants in your defined contribution plan
broader, cheaper and – ideally – better-performing options, starting with fixed
income.

ACM: During my time as CIO, we’ve increased our presence in the defined
contribution space. We are working on this big unitization project. We revamped
the compensation for the investment team back in 2019, which I think goes a
long way towards attracting and retaining really high-caliber investment
talent. So those are just a few of the things. But opportunities abound.

MG: Amy, what do count as accomplishments over the
past five years and what are you still hoping to accomplish?

ACM: I’m proud of where we are. I think that we have come a long way
despite the awkwardness of pivoting to a fully remote workforce during the heat
of the pandemic. Now we’re back together in a hybrid workforce, which I really
do believe facilitates collaboration and long-term relationship building,
especially as you bring on new people and they can then get into the culture a
little bit better. This giant project of unitization and the increased
management within the defined contribution space, those are big lifts for our
team and I’m very proud of getting there. So, it’s not just an overnight, this
is what we’re going to do. It takes years of planning, not necessarily years,
maybe a year for that unitization project. But the idea didn’t just come out of
the blue. Then you have to message the idea, get buy in, etc. So, it’s quite a
process and I’m proud of it. I can’t believe it’s been five years, Candidly, it
just has gone by so quickly.

MG: Finding and retaining personnel – especially on
the investment side – has been a challenge for many public pension funds. Would
PERA fall into this category as well?

ACM: On the investment side, we haven’t had a lot of turnover. However,
we have seen some in our operations division. We have firms in [Denver] that we
compete with for talent in all aspects of our business, but in particular,
investment operations. There are firms in town that we sometimes trade
employees with, which is unfortunate. So, there’s other aspects of PERA that
have experienced similar recruitment and retaining challenges just like
everybody else out there. As a result, I think we’ve had to be a little bit
more flexible and dynamic in our approach, whether that’s allowing more
flexibility for people to work from home or making sure we have a pulse on what
the market is paying for people so that we remain competitive. Certainly, in some
aspects of our business, we can’t necessarily compete compensation-wise with
the private sector, but we do have ancillary benefits, such as a nice defined
benefit plan. We have great benefits and flexibility. There’s been an openness
to evolve as the labor market has evolved. It’s moving very quickly though so
we’ll try to keep an open mind with where things are and recognize specific
areas where we’re having challenges.

MG: What about on the flip side? What are the
challenges you face as CIO?

ACM: Clearly, we have a funding issue (PERA ended
2021 with a funding status of 67.8%) and that is painful and now we’ve got
these markets in 2022 that are not really kind. It’s not dull.

MG: As a public pension CIO, you are in the spotlight. You’ve got pensioners
who are concerned about how the fund is doing. You’ve got a board that is asking
questions and you’ve got the media focused on your results. How have you
learned to adjust to this environment? Did it come naturally or is it something
that you are still figuring out?

ACM: It ebbs and flows. We are always looking for feedback and open to
it, such as through critiques of our stewardship report. But it’s not easy and
no, I’m not used to it. I take a lot of it to heart and personally, and so it
sometimes can be challenging. But it is part of the job and there are a lot of
people who support what we do. Certainly, a lot of our retirees are pleased
with the pension that they are receiving, and the way we are managing the
administration of their pension benefit. I think as our company continues to
try to improve our value proposition for all stakeholders, we’re getting that
feedback and trying to shape the business for the future so that we do continue
to meet their needs, but that feedback is an important part of that process. Certainly,
there’s always going to be criticism of investments, whether it’s “Why weren’t
you in 60/40 and why are you in these very opaque, expensive private assets or
why are you not in Bitcoin?” You know, you just answer the questions to the
best of your ability. And fortunately for us, the board’s philosophy is very
long term and strategic.

MG: It can’t be easy to hear those questions –
especially currently?

ACM: To the extent that one particular asset
outperforms in any given period or underperforms in any given period, we have a
very sound institutional quality story to tell. But yes, when markets are
highly correlated and going down, we’re going to be in that market. We’re
experiencing that and there will definitely be criticism. And so, you just
answer the questions and be as transparent as you can be and maintain that long-term
focus. You also try to really share that vision of the long-term nature of this
perpetual entity and the value to these 640,000 members and beneficiaries across
the state of Colorado – actually, across the world.

MG: A hot button issue for institutional investors these days is oil and
gas – many are facing calls from activists to divest. How are you/PERA handling
this issue?

ACM: It’s a topic that comes up very frequently. At almost
every board meeting there is someone who’s making a public comment about
divesting from fossil fuels or other aspects. And so, you know, we engage with
these stakeholders. We have had one-on-one calls with them. We have had
meetings, group meetings with them and we will continue to do so and try to
explain our position – the board’s philosophy on divestment. We would like to
afford our investors the broadest possible universe from which to generate the
returns necessary to support this long-term entity. And so, in addition to
those engagements which are not infrequent, we engage with legislators. There
is a variety of legislation that’s introduced almost every year, whether it’s
required reporting on the emissions or CO2 emissions within our portfolio. It
could be actual divestments. We’ve seen a couple of those bills introduced over
the years of fossil fuels and we will generally meet with those legislators,
explain our position, explain the board’s position, point them to our
stewardship report and then see what happens. That’s the philosophy of the
board and I think it’s a sound one to focus on that fiduciary responsibility.

MG: Earlier this year, you also were given the
additional title of chief operating officer. Can you provide some color on
that?

ACM: In that role, I oversee the benefits side of the
house as well as the administration side. So, a lot of the company and the idea
behind that dual role essentially was to try to get the company to collaborate
even more. Over the years, the company has really upped its game in each of its
divisions. And I don’t want to over-characterize it, but there was an opportunity
to leverage that collaboration across the benefits in the administrative departments.
Because I’ve been at PERA for a long time now, I have a lot of institutional
depth and relationships across the company, and I think that the idea was to
assist those large departments in really increasing the collaboration across
the company and really drive the company forward. We are, for instance, working
on rolling out an app for our members, which I think will really modernize our
operations and help meet our customers where they are, which is, of course,
what everyone wants to do. Again, I think other pension plans may be
considering this as well, but I think we’re one of the first movers on it. It’s
kind of a big lift organizationally. We’re not a tech company, but I think that
it’s kind of cool. I love those types of projects. I love Colorado PERA. And I
share Ron’s [Baker’s] vision of really moving the company forward. I think
that’s why he put me in this role – to sort of facilitate that shift. And I think
there’s a demand to do it faster than ever. We’re not competing with the Utah Retirement
System, we’re competing with the likes of large financial institutions, and we
don’t have quite the same budget they do. So, we’ve got to be creative.

MG: Amy, describe the ups and downs you’ve
experienced over the past two years as CIO of a public pension plan and what
you think might happen going forward?

ACM:  Well, the
last two years have been challenging – not only professionally, but personally.
I think some of us may have experienced isolation and loneliness through this
pandemic given that our coworkers weren’t around. Frankly, I’m a functioning
introvert, and it really impacted me being so isolated. I was going into the
office, but I was the only one on my floor, so it wasn’t exactly like I was
rubbing elbows with my investor friends. So, it was challenging, and I think
it’s also challenging to maintain those touch points with your team. For me, it
was that there wasn’t an ability to just run into someone and have that water
cooler conversation, which is so critical to developing those relationships. I
had to be really intentional about random calls to my team who may have thought,
“uh, why is Amy calling me?” That can be uncomfortable, right? But I don’t
really want to schedule an informal interaction. That kind of defeats the
purpose, but I think we’re all dealing with the same things, candidly, and I
mean, it was incredible how the market just really rebounded in 2020. I think
it really speaks to long-term strategic approach. The returns in the markets
over the last two years have been incredible. I frankly think we’ve pulled
returns forward a bit and so I’m not surprised that the market is where it is.
I guess I am surprised at the magnitude of inflation. I didn’t think it was
transitory. I sort of felt like it was going to be longer lasting, but these
are big numbers we’re seeing and that’s going to be very uncomfortable for the
retirees and their fixed cost-of-living adjustments or their fixed annual
increases. I think that’s the challenge for our company and frankly, for
legislators and stakeholders. They’re hearing from their retirees. It’s a very
large group of people in the state of Colorado. But that’s not up to the PERA
board. That is a legislative change and given our funded status, I don’t know
how that would work. But as it relates to the last two years, I think it proves
how resilient our teams are and how we are as people. I think we’re still
coming out of it as a society. I think there’s been some significant change
over the last two years – like the change in the labor force and the ideas of
work, life balance and working from home, I mean, I couldn’t have imagined it
two years ago. We didn’t even have any work from home at Colorado PERA, and now
we have two days out of the office, three days in the office. It’s interesting
how it’s evolved.

MG: Do you have a view of what the economy holds for the market and for
PERA?

ACM: What do I think about 2023 and the rest of 2022?
I really have no idea as it relates to the markets. Certainly, in my management
of the underlying portfolios, the smaller global portfolios that I co-manage, I
have views of the market and you know we’ve positioned those portfolios to
reflect those views. They’re also very long term though because of our long-term
approach. We’re not looking to change the portfolio composition at least at the
total fund level. Underlying portfolios may be making moves to reflect
increases in inflation expectations, higher discount rates, etc. The equity
portfolio is getting hurt given what happens to long-duration assets when
interest rates rise. But we’re not changing our philosophy. That’s how you get
whipsawed as an investor. And that’s not what we do best. We don’t time
markets. We’re here for the long term.