The US$5.2bn YMCA Retirement Fund is one of the oldest defined contribution pension funds in the world. Under its chief investment officer, Victor Raskin, the fund has embraced alternatives as it seeks ways to increase payments to its members. Alex Beveridge meets him in New York
Victor Raskin: It is all defined contribution but it is run like a defined benefit scheme. Participants have no choice, staff and investment committees decide asset allocations and how it is managed. The local YMCAs put in 12% of almost everybody's pay (some put in 8% to 10%) which goes into an individual account. Twice a year the board grants credits, with the base credit being 3% a year. The board then looks at the investment results and how much surplus is available. At retirement, we then annuitise the savings at 7%. But complicating this whole process is that part of the 12% is money deemed to have been paid by the participant and part of it is deemed to have been paid by the YMCA. It basically breaks down as 7% paid by the YMCA and 5% paid by the member. So the member has the option of taking a lump sum at retirement for the part which is deemed to be their contribution, but very few people do. Also, when we give out a big credit, the board also grants extra cheques to retirees, despite there being no obligation to do so. In the last two years, the retirees have received an extra cheque each six months. Over time, these cheques have more than matched inflation.
Alex Beveridge: That is a very unique model.
Victor Raskin: It is totally unique. It was formed 85 years ago and funded by Rockefeller. It was designed to help a low paid staff, which was doing good work, to have a benefit if they had given a career to the mission. This plan was in place before social security and you could say we were way ahead of the curve. But it is important to note that this is a church plan. This allows us to commingle our assets, so we commingle our 401 and 403 plans and it allows us to self-annuitise. Now in the US, the Employee Retirement Income Security Act (ERISA) does not allow this. We do operate under ERISA voluntarily, but with those two exceptions, which were granted to us by Congress.
Alex Beveridge: What would you say the biggest challenge facing the YMCA pension is?
Victor Raskin: Our biggest problem is achieving decent returns in a low return environment. Our portfolio is geared to achieve 7.8% every year, and - given our structure - that is fine, though we certainly would like to do better than that. So our problem is how to do better than 7.8% without taking undue risk. We are a pension plan for a not-for-profit organisation that has no deep pockets if we get in trouble. Since I have been here, which was November 2000, we went from plain vanilla 60% debt, 40% equity, to a totally diversified portfolio. We now have 17% going on to 23% in alternatives, and are doing everything we can to do non correlated assets. We are also trying to get into riskier assets which are uncorrelated, to bring down the overall risk of the portfolio.
Alex Beveridge: You seem to have quite a few people working here who are purely interested in alternatives.
Victor Raskin: This is because we outsourced everything else. We used to manage everything in-house and when I came here I wanted to continue that but the reality is it is difficult to keep the talent in-house. Nothing is now managed inhouse. Our private equity specialist goes out and picks partnerships for private equity, our real estate experts pick partners, but they are still being managed by somebody else.
Alex Beveridge: Was it tough to enact those kinds of changes?
Victor Raskin: Well, we had to fire staff. For an organisation like ours that was a very difficult decision. We did it in two tranches, getting rid of our fixed income operation in November 2002 and then in February 2005 we got rid of our large cap equity operations. By that time we were only running two thirds of our money in-house, we had farmed out small cap.
Alex Beveridge: How hard was the move to alternatives?
Victor Raskin: The move to alternatives was hard in terms of convincing the board, because they were concerned about illiquidity. But we have an advantage over a lot of other pension funds in that we are cash flow positive. So we can stand greater illiquidity. We got the board, which is made up mostly of investment people who are volunteers, to say we could go from 10% illiquidity to 20% illiquidity. But in reality we are only 9.9% illiquid right now and part of [the] reason [for that] is that our hedge funds, which make up almost 9% of our portfolio, are mostly liquid within 90 days. Now that number will go higher as we fill out our private equity and real estate portfolios, but it won't reach the 20%. By being cash flow positive, [along with] the fact that we self-annuitise, means we know the cash flows and know what we have to pay out. Income from interest and dividends - and also because the YMCA is still growing with new contributions coming in - means we always have money for repayments. All this meant the decision to decrease liquidity to increase returns and to increase diversification was achievable. We set a game plan five years ago to get to 23% [in alternatives] from 0%, and we are now at 17% and in the next year or two we will be there. And I would not doubt we could think about going higher.
Alex Beveridge: How will the 23% in alternatives break down and where are you now?
Victor Raskin: Of the 23%, 9% is hedge funds, 6% is real estate, 5% is private equity, 2% is commodities and 1% is private energy. Where are we now? [We have] 9% in hedge funds, 3% in private equity, 3.5% in real estate and 2% in commodities. So we have to get 2% more into private equity, which is just about committing more money and getting it called. We also need to get 2.5% into real estate.
Alex Beveridge: How do you go about choosing managers?
Victor Raskin: We have a consultant, Russell. We hired them a little over a year ago when we switched from Cambridge. But we also have an in-house professional who researches managers. We could disagree with the consultant, and we give our story and they give their story, but ultimately the board decides.
Alex Beveridge: I understand you also had some adventures in currency?
Victor Raskin: Adventures is the right word. It is not part of the alternatives because it is unfunded, it is all leveraged. Basically it has not worked, and it has not been the fact that we picked the wrong managers. We tracked 11 or 12 top managers, but it just did not work in the time frame of two years that we have been involved [with it]. We could move on from currency as an asset class, it is on the agenda for November.
Alex Beveridge: In terms of your investment staff, how difficult is it to recruit and retain experienced staff?
Victor Raskin: I have been in this business for 40 years and I only hire experienced people. We did recently hire a young analyst with five years of experience but my real estate expert has 30 years and my private equity specialist has 25 years of experience. The woman who picks managers has around 20 years. For people who want this kind of work environment, a small organisation which is not bureaucratic, this place is ideal. Biography: Victor Raskin
Victor has been the chief investment officer of the YMCA Retirement Fund since November 2000. Vic began his 38-year investment career as an investment analyst at Dean Witter, where he was a perennial institutional investor all-American analyst. Vic then moved on to portfolio management as a partner with Tallasi Management. From there he moved to Smith Barney as a managing director and a member of the Investment Policy Committee. Prior to joining the YMCA Retirement Fund, he was a senior equity portfolio manager for Nicholas Applegate. Vic has a BA in economics from Washington Jefferson College and is vice chairman of the Investment Committee of the Board of Trustees at his alma mater. He also has an MBA in investments from New York University. Vic has been a long term volunteer with the St. Thomas Soup Kitchen in New York.
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