Bob BordenCIO Bob Borden, his investment staff, consultants at NEPC and the South Carolina Investment Commission all joined forces in the last year to completely overhaul the $20 billion portfolio of the South Carolina Retirement System--a formidable task given all of the pieces involved. Trustees, consultants, managers and other industry professionals who have worked with Borden think that the amount he has done to turn around a fund of this size over such a short time frame is unprecedented. Large public pension funds normally take five or more years to change their asset allocation and investment strategy significantly.
Bob Borden
Prior to getting legislative restrictions lifted in 2006, the fund had most of its money invested in-house and only in equities and bonds. Last year, Borden brought in five strategic partners to oversee a variety of strategies on behalf of the system. He also tapped several mortgage-backed, credit-oriented, distressed debt, bank loan and high-yield managers to take advantage of undervalued securities and widening spreads.
Borden also set up his equity exposure in a way that allows him to dial up and down at any time easily and eliminate or add specific exposures. The fund has Russell Investments managing equities through derivatives on a variety of stock indices. In the middle of last year, Borden began scaling back on the equity exposure to avoid steep losses. He cut equities by about 20% overall, down to 5%, and put the money in cash to pay benefits and later fund future investments in alternatives and real assets.
Last year Borden brought in Morgan Stanley Investment Management, Goldman Sachs Asset Management, TCW, Mariner Partners and D.E. Shaw to handle strategic partnerships--broad mandates with the firms that allow the fund to tap into several capabilities quickly and easily. South Carolina is one of few public funds in the country employing such relationships with managers. "This affords them access to the breadth [of a firm's] products," said Gil Caffray, who recently joined Touradji Capital Management from FrontPoint Partners, one of South Carolina's absolute return managers.
The fund returned -14% for the one year ending Sept. 30, which put it in the 51st percentile of all NEPC clients by performance. That's a big leap from returns in the last three to 10 years, when it was in the bottom fifth percentile. Borden is currently working on a new approach to asset allocation, which would see the fund make tactical shifts as market cycles change (MML, 2/23).