The State of Wisconsin Investment Board, which oversees the $105 billion Wisconsin Retirement System, is renowned for its diverse investment strategy, internal management, benchmark-beating results and fully funded status.
Now the Madison-based fund also leads peers in investment management technology.
SWIB has just completed an overhaul to streamline its operations at a cost of $46 million – just under the $48 million budget. The fund says the process is already reducing risk and boosting alpha generation.
The technology is also giving the fund, for the first time, its own timely, holistic measurement of risk and performance that goes beyond audited reports from administrators.
“This is the most comprehensive technological system in place in a public pension plan in the US; we are at the forefront,” says Michael Williamson, who joined as executive director of SWIB in 2012 and retired from the position at the end of 2017. It was his observations five years ago that helped inspire the fund to invest in the four-year technology overhaul.
SWIB began to realise it needed to boost its operations and technology to manage assets in-house successfully – the fund now runs about 65 per cent of assets in-house, up from 21 per cent in 2007. It also needed the ability to access the right tools for the ambitious and sophisticated alpha-generating investment strategies it wanted to use, Williamson recalls.
“The strategies we were putting in place pointed out the need for additional operational systems and infrastructure that we didn’t have,” he says. “We’d outrun our headlights. Our strategies were more demanding than our ability to support them.”
Comprehensive view of equity, fixed income
Together with fintech consultancy Citisoft, the fund has introduced a new single reporting platform for its $74 billion internally managed public markets allocations in fixed income and equity.
The new platform integrates data from these allocations into a format that combines risk management and investment performance data, scenario analysis, attribution and trading. The technology offers the team daily positioning functionality, profit and loss breakdowns and multi-asset reporting while cross-asset risk modelling allows internal teams to play out scenarios.
For the first time, SWIB has a comprehensive view of risk across its equity and fixed income investments. Before, the internal team could see individual risks in the equity and fixed income buckets but couldn’t see it at the portfolio level.
“We needed access to information at a higher level,” Williamson explains. “We had silos looking at equity and fixed income, but when you are beginning to play in all of these areas simultaneously, you need to understand the relationships between the different asset classes and it requires a greater level of knowledge and information to support decisions.”
Fixed income accounts for 29 per cent of assets under management at the fund, while about half of assets under management are in equity, divided between US and international stocks. The fund still uses external managers in private equity (8 per cent) real estate (6 per cent) and hedge funds (4 per cent)
The new platform also allows the fund to rebalance more effectively and efficiently.
“We are rebalancing earlier and beating market trends ahead of time,” Williamson says. “We used to rebalance a couple of times a year – I think last year we rebalanced around 10 times. Now we have the tools and ability to do this more efficiently and it means we can make real changes and generate alpha here.”
The platform’s whole-of-portfolio view and rebalancing efficiency have generated about $74 million in savings over the last year, Williamson estimates.
“We have already paid for our investment in generated returns,” he says.
SWIB and consultants Citisoft started the project with a strategic assessment that developed into a roadmap and delivery. The consultancy also played a key role in persuading trustees to support the plan.
“Our consultants showed us where we were, and where we needed to be,” Williamson says. “This way, our trustees were able to see the vision, and they supported the expenditure, which at $48 million was major. We were also able to say to our trustees that we could generate additional returns as a result, and they have been very supportive.”
Private markets next for integration
In 2018, SWIB plans to integrate its in-house private market allocations into the new platform, Williamson explains.
“I use the analogy of a property development: first you have to build the infrastructure, connect up the water and sewage,” he says. “We have now done this and it’s given us the ability to bond-on various applications and platforms on top of this. Private markets will be much simpler because of the infrastructure we’ve already laid.”
The new technology has transformed middle- and back-office processes, too. Other initiatives, such as an investment book of record providing timely data to the front office, have also been integrated.
The project hasn’t been without its challenges and Williamson has advice for funds planning similar investments: plan well; involve senior leadership throughout the project, it’s not something that can be delegated to a low-level team; and ensure excellent communication across the various project teams so they move forward in unison.
Finally, he advises, be patient.