Nov 18, 2024 · 1h 1m · capital-allocators
Jon Glidden - Delta Airlines Pension Fund Turnaround (EP.417)
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Jon Glidden, Chief Investment Officer of Delta Air Lines, detailing how disciplined portfolio construction, portable alpha, multi-layered tail risk hedging, and corporate alignment orchestrated the largest corporate pension turnaround in history from 42% to 102% funded status.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 17.7% of the talking time here. How this is scored →
Ted as informed peer 3.8 Guest teaching 2.9 Guest disagreement 0.2 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 27:20 Rejecting high-beta hedge funds
Glidden firmly rejects the conventional allocator practice of paying full 20% incentive fees for 0.40 beta hedge funds, arguing it requires unrealistic manager selection skill.
Hardest push from Ted ▶ 37:20 Challenging internal team bandwidthTed presses Glidden on how a tiny internal team could realistically implement and risk-manage such complex, multi-layered derivative and portable alpha structures.
Biggest teaching moment ▶ 42:20 Dissecting the March 2020 liquidity waterfallGlidden educates the audience and Ted on the mechanical reality of navigating 3 billion dollars in margin calls within 5 weeks, unwinding layered hedges step-by-step.
Ted holds their own ▶ 31:10 Probing venture capital duration mismatchTed demonstrates sharp allocator expertise by immediately pinpointing the omitted asset class in Glidden's private portfolio and challenging him on venture duration risk.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Early Background: Naval Officer to Emory Business School | 3 | 2 | 0 | 0 | Ted opens with a standard biographical prompt asking Glidden about his path to Delta. Glidden delivers an extended monologue detailing his naval officer background, early savings habits, and transition to Emory Business School. | |
| Formative Concepts: Derivatives, Leverage, and the Capital Market Line | 3 | 4 | 1 | 0 | Glidden explains foundational quantitative concepts learned at Emory and during an internship, such as borrowing at the risk-free rate using derivatives and PIMCO's StocksPLUS. Ted listens as Glidden walks through how these ideas shaped his core investment beliefs. | |
| Portable Alpha at Emory and the Four Forces Framework | 4 | 3 | 0 | 0 | Glidden outlines how working with Matt Wright at Emory and managing a hedge fund portfolio shaped his portable alpha approach, culminating in his Four Forces framework. Ted's prior connection with Protege is mentioned organically. | |
| The Delta Pension Crisis and Initial Pitch to Leadership | 4 | 3 | 1 | 1 | Ted asks how Glidden arrived at the Delta role after Wilmington Trust. Glidden details the dire state of Delta's pension post-bankruptcy and his contrarian pitch to CFO Paul Jacobson to deploy leverage, derivatives, and portable alpha. | |
| Portfolio Architecture: Designing Delta's Turnaround Engine | 4 | 3 | 0 | 0 | Ted prompts Glidden on how he engineered the asset allocation to target 200 basis points of alpha. Glidden breaks down the mathematical portfolio construction across private equity, hedge funds, cash, and a 50 percent beta overlay. | |
| Cash Management, 90-Day VAR, and the Golden Rule | 4 | 3 | 0 | 0 | Ted asks how cash was positioned relative to such aggressive return targets. Glidden explains their 90-day VAR risk framework, benefit payment liquidity needs, and the formulation of the Golden Rule backing derivative notionals. | |
| Hedge Fund Construction and Portable Alpha Diversification | 4 | 3 | 1 | 0 | Ted inquires about the hedge fund selection strategy to achieve a 3 percent hurdle over cash. Glidden explains targeting low-beta multi-strategy pod shops and macro traders, dismissing higher-beta long/short equity. | |
| Private Markets Implementation and Mitigating the J-Curve | 4 | 2 | 0 | 0 | Ted asks about the 30 percent private allocation and specifically drills down on venture capital. Glidden explains intentionally mitigating the J-curve through secondaries and co-investments to maintain executive credibility. | |
| Multi-Layered Hedging and Enterprise Risk Management | 4 | 3 | 0 | 0 | Ted asks about the multi-layered hedging bucket. Glidden walks through put spreads, LIBOR floors, long volatility, and managed futures designed to protect the plan from causing corporate distress. | |
| Sponsor Message: Ridgeline | 4 | 2 | 0 | 1 | Following an ad break, Ted presses on how a lean six-person team executed complex derivatives and alternative strategies. Glidden highlights close collaboration with key external consultants who actively stress-tested his assumptions. | |
| Navigating the March 2020 COVID Crisis | 4 | 4 | 0 | 0 | Ted asks about managing through major market dislocations like COVID in March 2020. Glidden gives a detailed narrative of meeting 3 billion dollars in margin calls, monetizing hedges, and almost pulling hedge fund capital before the Fed intervened. | |
| Post-COVID Recalibration and the Power of Corporate Alignment | 4 | 3 | 0 | 0 | Ted asks how the hedging program was recalibrated once the plan recovered to full funding. Glidden explains reducing cash reserves and derivative overlays while crediting Delta's 11 billion dollar corporate contributions. | |
| Implementation Realities and the Passion for Alpha | 3 | 2 | 0 | 0 | Ted transitions into concluding reflections and rapid-fire closing questions. Glidden passionately reaffirms his love for generating alpha and beating benchmarks before discussing personal hobbies. |
Statements from this episode (20)
Glidden: Derivatives enable borrowing near risk-free rates to lever portfolios
“If you can borrow at the risk-free rate, you can just lever your tangent portfolio. You can make more money per unit of risk. Well, can you do that? Can you borrow at the risk-free rate? Some people can. You can do it through the use of derivatives.”
Glidden: PIMCO beat equity benchmarks via derivatives and bond portfolios
“It's really hard to beat equity indices by picking stocks in a constrained manner. But what PIMCO did, they pair an S and P 500 derivative on top of a bond portfolio. So then they get some alpha, some duration, some credit, and they beat the index that way and…”
Glidden: Emory Endowment Sold $3B in Coca-Cola Stock to Diversify
“Emory, even back in those days with six billion, we sold three billion dollars worth of Coca-Cola stock in the pretty early days.”
Glidden: Emory's Portable Alpha Portfolio Beat Benchmarks by 200 bps
“It worked. We beat benchmarks by 200 basis points on this portable alpha portfolio we had.”
Delta's Pension Was America's Worst-Funded in 2011 With $14B Shortfall
“The pension today is sixteen billion. Back in those days, the pension was more like seven billion, and it was fourteen billion underfunded on a company with a market cap of seven billion dollars. Funded status was hovering in the upper thirties, low forties, s…”
Delta's 2014 Pension Strategy: 40% Hedge Funds and 50% Leverage
“We go back to July of 2014, and that's the portfolio. 30% privates, 40% hedge funds, 10% cash, borrow 50%. You've got this other 20% funded stuff in case you've got a liquidity event if you really need it. That's what the portfolio looked like back in 2014.”
Glidden: Delta Pension Pays Over $100M Monthly in Benefits
“So we pay out over a hundred million dollars a month.”
Delta Backs Every Notional Beta Dollar With Cash or Hedge Funds
“We created something that we call the golden rule. So we've got a notional value of our beta overlay. Every notional dollar needs to be backed by either cash or hedge funds. That's the golden rule.”
Glidden: Treasury Cash and Carry Strategy Yields More Than Warranted
“So treasury cash and carry, it's been a good strategy. To this day, it's a better strategy than it probably should be. It probably pays you more than you should.”
Glidden: Unconstrained Hedge Funds Surpass Benchmarks Easier Than Long-Only
“The idea here is that unconstrained talented hedge fund managers have a better chance of beating a risk-free rate than highly constrained long only managers have the probability of beating a benchmark.”
Increasing Manager Count Is Key to Mitigating Hedge Fund Skew Risk
“The only way to get around some of that skew risk, some of that kurtosis risk, is to just increase the number of managers that you work with.”
Glidden: Paying 20% Fees on 0.4 Beta Demands Unrealistic Selection Skill
“If you're paying 20% incentive on 40 beta, you got to be damn good at manager selection. Some people can do it. I can't. That eliminates a lot of the universe.”
Glidden: Delta allocated private assets across 50% primaries, 30% secondaries, 20% co-investments
“15% private equity, nine percent private credit, six percent private real assets. Within that, for the private equity and the private real assets, 50% primaries, 30% secondaries, 20% co-invest.”
Glidden: Delta capped venture capital at 5% to 10% of private equity
“Want to be very cautious with venture because it is the longest duration asset class, but we targeted in that five to 10% range of the private equity exposure is about what we wanted venture capital to be.”
Glidden: Delta pledged 5% contributions and a 9% return backstop
“When might Delta not be able to stand up to that pledge that they made in those early days, which is we're going to pay the five percent mandatory. And if you don't hit a nine percent expected return, we're going to stand up and make it like you did make a nin…”
Delta Pension Faced $3B in Margin Calls During March 2020
“We had three billion in net margin calls around the worst of the COVID timeframe. So we went into COVID reserving about three billion in cash behind our derivative portfolio.”
Glidden: Prime Directive of Portable Alpha Is Never Getting Forced Out
“You've got the one prime directive of portable alpha. Do not let the markets push you out of your beta position. Do not let the markets push you out of your alpha positions.”
Delta Pension Compounded at Over 10% With ~185 Bps Alpha (2011-2021)
“The plan largely worked. So we compounded at over 10% from 20 11 to 20 21. We didn't quite get our 200 basis points of alpha, but we were really close. 180, 190 basis points of alpha.”
Delta's Portable Alpha Strategy Generated $2.25B in Net Value Over Decade
“That portable alpha, that's over two hundred million dollars of net value per year for over a decade. 2.25 billion since the inception of the program. Private markets, it's over a billion excess relative to the respective public markets since then.”