Recruitment and retention of investment and operations staff at the $79.4 billion Alaska Permanent Fund Corporation is now so acute the fund is exposed to operational risk with potential adverse impacts on performance and corporate reputation.
So heard the board of trustees in a specially-convened meeting to discuss the issue following an unprecedented wave of staff leaving the fund in recent months that includes Steve Moseley, deputy chief investment officer and head of alternatives, and the entire operations team who will exit APFC on the same day in August. Others include the director of administrative operations – a big gap going into the budget – and members of the IT and procurement teams. Here the fund has only received 10 applications in the last five months, none of which meet the minimum qualification.
The board heard how the root cause of the problem lies with “materially below par” compensation linked to budget constraints. It means efforts to train and develop staff are often wasted as many are snatched away by those able to pay more, leaving APFC struggling to build a bench of talent. Trustees heard how one recent leaver had gone to a salary paying 200 per cent more.
For sure, trustees heard how departures should be seen in the context of the high turnover in the wider investment industry and the Great Resignation through the pandemic. Moreover, APFC has added some 17 positions over the last five years.
However, employees have left the fund over a short period of time rather than throughout the year, and APFC’s already smallish internal team leave departures more keenly felt than if they were spread cross a deeper organisation. It means team members are wearing multiple hats like the chief compliance officer also doubling up as chief risk officer. Chief investment officer, Marcus Frampton, currently has 11 direct reports.
Trustees heard how the exodus of APFC’s three-strong operations team, who provide essential support to the internal trading of the portfolio and trade settlement, is particularly linked to the fact they are not bonus eligible unlike the investment team, creating a rift in culture and team spirit.
Their exodus has led to APFC now hunting a costly, outsourced solution to the services they provide.
“It is not an area of operations we can afford to have gaps in support,” trustees heard.
In an approach designed to fit with wider pay structures across Alaska’s public sector, incentive compensation only applies to investment personnel. However, although it was first approved in 2018, in the years since the investment team have experienced changes to payout levels that have resulted in haircuts to their bonus. Most recently, bonus payments were reduced by about 44 per cent.
The level of bonuses that investment team members receive is a complex process with many contingencies.
Payouts are capped at a percentage of salary; bonus calculations take into consideration individuals’ prior compensation and performance of the total fund as well as asset class weightings. Short and long-term performance also goes into the calculation.
In another complexity, bogey levels or targets by which the investment team need to beat the benchmark to fully earn their bonus, are notably steeper in fixed income compared to peer funds.
Frampton told the board candidates read the policy and dislike the lack of clarity on the bonus structure. He said that paying out incentive compensation is crucial to motivate investment staff.
Other considerations the board discussed to support recruitment and retention included locating staff in Anchorage and developing a more flexible approach to work. So far only three members of the investment team are approved to work remotely.
Trustees heard how starting salaries on the operations side are not much higher than for a public accounting firm.
Other solutions include working with local universities and building the intern program. Trustees also heard about the importance of encouraging and nurturing internal growth and promotion, offering different titles, levels of promotion and compensation.