Jun 3, 2024 · 58m · capital-allocators
Anne-Marie Fink - Cutting Edge Pension Investing at SWIB (EP.389)
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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 Anne-Marie Fink, Head of Private Markets and Funds Alpha at the State of Wisconsin Investment Board (SWIB), exploring how the fully funded $140 billion state pension utilizes shared-risk governance, whole-portfolio leverage, portable alpha, and disciplined private market strategies.
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 25.3% of the talking time here. How this is scored →
Ted as informed peer 5.9 Guest teaching 3.6 Guest disagreement 0.7 Ted pushing back 0.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 53:50 Pushing back on PE industry's unnatural liquidity mechanisms
Anne-Marie bluntly labels continuation funds and NAV loans as 'unnatural liquidity' and a collective action problem that SWIB does not welcome.
Hardest push from Ted ▶ 34:37 Pressing on residual beta risks in portable alphaTed presses Anne-Marie on how SWIB can isolate true portable alpha without taking on unhedged directional market beta from external multi-strats.
Biggest teaching moment ▶ 19:18 Explaining the mathematics of SWIB's shared-risk pension modelAnne-Marie educates the audience and host on SWIB's unique design where retiree payouts adjust dynamically according to a 5-year trailing 5% return hurdle.
Ted holds their own ▶ 27:43 Synthesizing portfolio construction tradeoffs with leverageTed demonstrates deep allocator expertise by analyzing the yield curve sensitivity and asset mix implications of SWIB's whole-portfolio leverage.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Anne-Marie Fink Career Origins in Equity Research | 5 | 2 | 0 | 0 | Ted conducts a friendly career overview probing Anne-Marie's start in equity research at Columbia and JP Morgan. | |
| Writing The Moneymakers and Investor Corporate Alignment | 6 | 3 | 1 | 0 | Ted connects Fink's book The Moneymakers to corporate activism and capital management, while Fink details the disconnect between executive horizon management and investor expectations. | |
| Transitioning from Stock Picking to Hedge Fund Selection | 6 | 4 | 1 | 1 | Ted drills into how evaluating a single stock holding reflects a manager's broad competence. Fink describes her technique of testing managers on the bear case of their high-conviction ideas. | |
| Lessons from Rhode Island and Joining SWIB | 5 | 3 | 1 | 0 | Fink explains the structural resource constraints and public skepticism encountered at the Rhode Island state pension before transitioning to SWIB. | |
| SWIB Governance Structure and Shared Risk Incentive Model | 6 | 5 | 1 | 0 | Ted probes SWIB's unusual fully funded status and governance model. Fink details the shared-risk payout structure where retiree benefits adjust above or below the 5% hurdle. | |
| Total Portfolio Construction Leverage and the SWIB Edge | 6 | 4 | 0 | 0 | Ted and Fink discuss SWIB's delegated authority and rapid turnaround times on co-investments that comprise the institutional 'SWIB edge.' | |
| Asset Allocation Breakdown and Whole Portfolio Leverage Mechanics | 7 | 4 | 0 | 1 | Ted examines the mechanics of leverage across the total portfolio, prompting Fink to detail SWIB's 112% exposure and asset class proportions. | |
| Sponsor: Ridgeline Front-to-Back Investment Management Platform | 5 | 3 | 1 | 0 | After an ad transition, Ted asks about active versus passive equity implementation, and Fink explains using 150/50 extension strategies. | |
| Portable Alpha Strategy and Multi Asset Hedge Funds | 7 | 4 | 1 | 1 | Ted asks how SWIB manages residual beta in absolute return strategies. Fink clarifies they treat hedge funds exclusively as portable alpha overlay without micro-managing underlying beta. | |
| Strategic Partnerships Early Allocations and Managed Platforms | 6 | 3 | 0 | 0 | Ted discusses leveraging scale to anchor emerging managers. Fink gives examples of funding GP final closes and co-anchoring an SMA tech platform. | |
| Lower Mid-Market Private Equity Focus and Exits | 6 | 4 | 1 | 0 | Fink outlines why SWIB prioritizes lower mid-market private equity where exits to sponsors and strategics remain liquid relative to mega-cap IPO dependency. | |
| Venture Capital Allocation and Wisconsin Local Ecosystem | 6 | 4 | 0 | 0 | Ted explores venture capital sizing in a large pension plan, with Fink detailing their long game of small entry checks and the local Wisconsin venture program. | |
| Separately Managed Account Innovations and Daily Monitoring | 6 | 4 | 1 | 0 | Ted asks about selection bias in spinout PMs from multi-manager platforms. Fink explains that managed accounts grant daily transparency and flexibility over risk bounds. | |
| Risk Management Architecture and the Portfolio Engineer | 6 | 4 | 1 | 0 | Ted probes aggregate risk infrastructure across diverse sleeves. Fink introduces SWIB's dedicated 'portfolio engineer' role bridging investment staff and tech systems. | |
| Private Market Liquidity Dynamics and Continuation Vehicles | 6 | 3 | 1 | 0 | Ted asks about future private market developments. Fink critiques artificial liquidity mechanisms like NAV loans and continuation vehicles before wrapping with lightning-round questions. |
Statements from this episode (40)
Fink: Investors prefer incremental business transformations over five-year CapEx bets
“And really what investors are looking for is not that people can't transform their businesses, but that they do it in an incremental way, in a way where you take small steps, You make sure they work and you get better and better over time rather than I'm going…”
Fink: Competence drives workplace happiness, not the other way around
“To create a successful and happy workforce, you actually need to be good at your job, and then the happiness follows, or to be successful in whatever endeavor you're going after, rather than let's make everybody happy, and then they'll be good at what they're …”
Fink: Hedge fund managers differentiate themselves by responding thoughtfully to bear cases
“Where you really figure out who's got that something extra is when you feed back to them the bear case and say, well, okay, you said this is positive, but what about this risk and what about that risk? And how they respond to those risks, whether they thought …”
Fink: Long/short equity pitchbooks look identical until you probe granular stock details
“If you look at, particularly in the long, short equity space, if you look at everybody's book, the first four or five pages look exactly the same. We know our stocks better than anybody else, blah, blah. It's when you get into the details, you can really figur…”
Fink: Rhode Island Pension Managed $8 Billion With Three-Person Team
“A couple of them were being under-resourced, so there were basically three of us that were managing eight billion dollars with consultants, but we were doing everything.”
Fink: Delegated investment authority gives SWIB a major partnering edge
“So we have delegated authority, which is great because it means we can move fast. We can speak for investments. We don't have to say, well, we'd like to invest, but talk to us in a month after we've talked to our investment committee and we'll let you know. So…”
Fink: Capping pension upside while absorbing downside mathematically guarantees underperformance
“When Detroit went bankrupt, what was that, five, seven years ago, You looked at the plan and the expected rate of return was eight percent, and any year that they performed higher than eight percent, they paid it out. So by definition, you're never going to ge…”
SWIB applies whole-plan leverage to lower baseline asset risk
“We do a little bit less risk in terms of the assets that we own, and then we add back a little bit of risk through levering the entire plan.”
Fink: SWIB can respond to co-investment opportunities within weeks
“When we're shown, for instance, a co-investment, we can respond within a couple weeks.”
SWIB manages approximately half its portfolio internally and half externally
“So our default position is to do things internally, but then there are three reasons that lead us to do things externally, and they're pretty reasonable, such that the portfolio ends up being about half internal, half external.”
SWIB manages 100% of its emerging markets allocation externally
“All of our emerging markets we do externally.”
SWIB reduced portfolio leverage to 12% amid an inverted yield curve
“We're currently at about 12% leverage, so we have 112% invested for every dollar that we have in assets, and that used to be higher when the yield curve was not inverted. It makes much more sense to do this when the yield curve is more normal, so we used to ha…”
Fink: SWIB's 112% asset allocation spans 38% equities, 26% fixed income, 30% privates
“But we're about 38% in equities, 26 in fixed income, 19% in tips, 30%, give or take, in privates. So that's 10 in private real estate and 20 in private equity and private debt. And that gets you to about a 112.”
SWIB allocates 20% to 25% of public equities to passive index strategies
“So we do have about 20 to 25% of our portfolio in passive, mostly because we want to do all of our rebalancing in passive space. So we're also very rigorous about rebalancing each month, and we want to be able to do that without hitting our active managers all…”
Fink: Extension strategies help active managers navigate highly concentrated stock markets
“Particularly last year with the magnificent seven and the stock market being so dominated by seven companies, it's been hard to be active because so much of your allocation gets eaten up by just even having a market weight in those seven. So what we find by lo…”
Fink: SWIB uses hedge funds strictly as a portable alpha overlay
“So we have a very distinct way that we use them, which is portable alpha. So we do not actually, and you'll notice when I gave you the allocation, there were no hedge funds in there. It's because we actually think of the hedge funds as almost an overlay. So we…”
Fink: SWIB invests across hedge fund strategies, excluding only long-biased funds
“I don't think there's any strategy that we don't do other than long biased. So we do have long short equity hedge funds. We do have macro funds. We have quant funds. We have multi strats. We have some relative value. And then we also do a little bit of special…”
Fink: Neutralizing underlying hedge fund beta is operationally impractical for allocators
“What we don't do is try to take out the betas underneath. Partly we haven't done it because operationally it's difficult, and then partly because if a manager tells us at the end of the month or even the end of the week that they're along something, by the tim…”
Fink: SWIB exits hedge fund managers showing persistent beta bias
“What we do look, though, is over time, does anybody have a bias? And if they tend to have a beta bias, then they're probably a candidate to leave our portfolio.”
Fink: SWIB often makes year-one investments and occasionally day-one investments
“We have on occasion done day one, but we will often do year one investments, and we are willing to work with managers on what they're looking to achieve from a business perspective and what we are looking for as well.”
Fink: SWIB offered $25M top-ups to close PE funds for better terms
“So we had some managers where we had made an initial allocation and we went back to them and said, OK, you're having trouble getting to your final close. What if we give you another twenty five million that'll get you Close enough. And in exchange for us givin…”
Fink: SWIB and UTIMCO co-anchored multi-pod SMA platform spinout
“Another thing that we've done is we partnered with one of our multi pad hedge funds. They basically spun out their technology and created a separately managed account platform. So us and UTIMCO together basically anchored this new manager, and as a result of t…”
Fink: Lower mid-market private equity offers better return opportunities than mega-caps
“We actually are pretty big believers in lower mid-market funds, but we think that the opportunities in lower mid-market, if you've got the skill to really go in and assess people, we think the opportunities for returns are better.”
Fink: Current private equity liquidity is slightly subnormal, not vastly abnormal
“The 2021 liquidity was unusual. And the 2023, 20 24 liquidity is probably less than normal, but not Vastly abnormal. It just feels vastly abnormal because 21 was so amazing.”
Fink: Mega-cap PE managers face severe exit constraints compared to mid-market
“So in that environment, it's particularly more difficult for larger managers because you have fewer ways to exit. You really can only exit through IPO or through publicly traded company making a very, very large acquisition. Those don't happen every day.”
Fink: SWIB's venture capital portfolio is about $2 billion
“So our portfolio is relatively smaller. It's about two billion dollars.”
Fink: SWIB writes $5M to $10M checks for toeholds in venture
“Particularly in venture where we will do, we prefer not to, but we will do five or ten million dollar checks to get A toehold with somebody and then try and grow it over time.”
Fink: SWIB runs local Wisconsin venture portfolio with standard return hurdles
“One is we have a Wisconsin venture portfolio. So we have a portfolio that Is designed to either invest in managers that are based in Wisconsin or ones that spend a lot of time with Wisconsin companies. Now, unfortunately, I don't have a lower return hurdle for…”
Fink: Private Debt Has Not Operated Through a Real Distress Cycle
“On the other side, the private debt markets haven't really been around during a proper distress cycle. Because they really weren't of any size in 2008, which was the last time you had a real cycle.”
Fink: SWIB Uses Trigger Funds in Distressed Debt to Avoid Idle Fees
“We're doing more in MEZ, more in distressed, and a lot of the distressed people that we're working with, we're giving them trigger funds, so that we'll give you a certain amount of money today, and if there's a real proper distress cycle, we'll give you more, …”
SWIB helped seed a secondaries strategy for favorable economic terms
“So we recently helped a group get a secondary strategy up and running, and in exchange got really interesting economics out of that.”
Fink: Managers leaving pod shops no longer face negative selection bias
“Part of the reason that we did a separately managed account platform now and not in the past is we feel like now that there's not negative selection bias on the talent. So what we're finding is there's a lot of folks who are high quality managers often worked …”
Fink: 8 of 10 initial SWIB SMA managers had independent track records
“About eight of the 10 that we started with actually have been running money for a little while on their own, so we can look at their track records.”
Fink: Daily position monitoring reveals far more than manager pitchbooks
“It's also been, I think, enormously helpful for our team to watch what the managers are actually doing, because it's one thing, again, to see the pretty pages in the flipbook that say, this is our philosophy, this is our process, but then when you watch what t…”
Fink: SWIB enforces an information barrier between internal and external managers
“Our internal teams don't see what the positions that our external managers have, so let me be clear about that. There is a Chinese wall there.”
Fink: Allocators should hire a dedicated portfolio engineer
“I recommend for everybody to get a portfolio engineer.”
Fink: Other states lack trust needed for SWIB-style shared-risk pensions
“And in fact, other states would love to set up a similar system, but there's just not enough trust between the pension participants, the taxpayers, and the investment professionals to set that up.”
Fink: SWIB is actively growing its private markets allocation
“We're actually growing our privates allocation at the moment, and we're happy to
Do that.”