Washington State prioritises excellence

Gary BruebakerThe $70.5 billion Washington State Investment Board has prioritised hiring the best managers in public equities and is willing to sacrifice the number of active investment relationships in lieu of the managers it believes are “truly exceptional” as it enters 2010 with plans for global manager searches.

As part of its 2010 public equities strategy, the fund will focus on the less efficient global and emerging markets allotting broad mandates and migrate towards a broader, more flexible, more focused, global structure.

Chief investment officer, Gary Bruebaker, said the search for global managers would focus on finding the best managers, those with which the fund has “high conviction”.

The WSIB has a target allocation of 37 per cent to equities, split between international (22 per cent) and US equities (15 per cent) and hires a total of 13 managers.

Within international equities 20 per cent is allocated to emerging markets, where all of the assets are managed actively in five mandates, and 80 per cent to developed markets, split 80:20 to active managed by a total of nine managers.

In a presentation to the board senior investment officer, public equity, Philip Paroian, said passive management should be the default investment strategy in cases when staff cannot identify exceptional managers.

One of the board’s trustees, David Nierenberg who sits on the WSIB’s private markets and public markets committees and is president of Nierenberg Investment Management Company, stressed the importance of having adequate resources to find the best active managers and oversee those managers.

“If we do not have the resources to do this, then we must fall back to more indexing and selection and oversight of fewer active managers,” he said.

Bruebaker said the board has set clear direction that they are not interested in managing active US equities, and he said staff should not bring forth any active purely US focused products.

About 75 per cent of the US equities allocation is passive, with a 25 per cent enhanced indexed allocation.

The WSIB public equities managers are Capital, JP Morgan, Lazard, GMO, Arrowstreet, Pyramis, Artio, William Blair, LSV, Mondrian, Barclays, SSgA, and BGI.

Asset allocation as of September 30, 2009

Asset Class      Market Value

Fixed Income  $24,816,830,969

Tangible Assets           $ 550,048,099

Real Estate      $ 7,898,607,961

Global Equity  $ 23,947,270,266

Private Equity $ 11,472,954,073

Innovation       $ 461,512,292

Cash    $ 1,402,096,666