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Vicki Fuller Chief Investment Officer Of New York States 150 USD Billion Employee Pension Fund Case Solution

Solution Id Length Case Author Case Publisher
2109 4525 Words (16 Pages) Steven Rogers, Valerie Mosley Harvard Business School : 317-044
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Vikki Fuller was appointed as the Chief Investment Officer for the New York State Common Fund by Tom DiNapoli in 2012. It was her first time in the role of Chief Investment Officer; however, her strong experience records and her dedication towards her role showed that she would be a suitable candidate for the position. She had previously served as senior VP and Director in the Institutional Marketing Funds Group at Alliance Bernstein. She left the company as it lacked a clear sense of leadership direction and switched to the New York State Common Retirement Fund. Following the 2007 global financial crisis, the US Treasury risk-free yields declined. The interest rates also declined, resulting in a larger present value of the pension liability (Beer & Gnan, 2015). On the other hand, the yield from the performance of the assets invested in stocks, equity, and real estate declined. Furthermore, the revenue from taxation declined due to the recession prevalent in the economy. 

Following questions are answered in this case study solution

  1. Introduction

  2. Analysis

  3. Conclusion and Recommended Actions

Case Analysis for Vicki Fuller Chief Investment Officer Of New York States 150 USD Billion Employee Pension Fund Case Solution

The majority of the state funds were, therefore, suffering as a result, as was indicated by the ability of New York's Common Reserve Funds assets to cover just 87% of its pension liabilities. The pension liabilities coverage ratio, therefore, indicates that the firm will just be able to cover 87% of the pension payments (Regan & Bleiberg, 1985). Hence, Fuller was faced with the challenge of allocating the funds in the pension funds across alternative funds like private equity, hedge funds, venture capital, and other less liquid assets to be able to earn a higher degree of return. Although these investments posed a high risk, they proposed a comparatively higher return. However, the basket rule applied at New York's CRF restricted the fund to be able to invest only 25% of its assets on alternatives investment. 

The following report will assess the appropriateness of Tom’s choice of Vicky as the CIO for New York's Common Retirement Fund by identifying the skills needed by CIO to be successful. The action plan will be suggested pertaining to what Vicky should do to achieve the returns required to fulfil the goal of catering to 1 million plan participants consistent with the constraints she will face.

2. Analysis

i. Appropriateness of Vicky Fuller for the Role of Chief Investment Officer

Vicki Fuller was a person seeking leadership clarity in her role in terms of the firm's vision, identity, integrity, and culture. These reflect her strong moral values and a dedicated working attitude. As Tom Di Napoli was among one of the only four trustees responsible for investment oversight across the United States, he strongly needed someone with a  strong investment acumen to be able to plan with him on the allocation of the investments as he was the one who had the final say on how the fund was invested. Tom Di Napoli was faced with a couple of other challenges, including the Hevesi scandal, which distracted his efforts on managing the funds' investments. The hiring of Vicki Fuller seems to be a reasonable choice by Tom DiNapoli as Vicki can be seen to have demonstrated strong moral and ethical values in her previous job role. This is because she openly condemned the after-hours trading scandal at Alliance Bernstein, where most of the staff was completely fine with the practice, and even the president was involved. Hence, Vicki was more concerned with developing an identity and a culture rather than just making money, which was even reflective when she was willing to accept a lower salary at State Fund than what she was receiving at AB.

Vicki also did not like the culture of secrecy at AB as she found that there was a lack of collaboration among the departments, and there was no vision towards which the organization worked. This was an important concern as it resulted in no future direction of the company (Wilson, 2005). This helps explain that hiring Vicki would help transform the situation of the state pension fund as Vicki would effectively take on her responsibility and help DiNapoli by sharing his workload. Also, considering the high level of uncertainty in the state pension funds were meeting the liabilities from the assets has become a challenge, there is a need to engage in high risk-taking strategies to be able to fulfil the obligations. Fuller's past experience at Equitable Capital as a High Yield analyst is, therefore, an added advantage in such an uncertain situation. She has expertise in investing in junk bonds, and her calculated risk-taking approach enabled her to earn attractive returns. Hence, given the small percentage of the assets that can be invested in alternate investments, delegating Fuller to become the Chief Investment Officer of the New York State Common Retirement Fund would increase the probability of the fund being able to earn a somewhat higher return to cover the existing pension liabilities. Hence Tom made the right choice by selecting Vicki Fuller for the role of the CIO. 

Vicki made the right choice by selecting the role of Chief Investment Officer at the New York State Common Retirement Fund. Firstly, because Vicki's personality was the best fit considering the organizational culture of the Retirement Fund management, where Tom wanted someone who would be ready to take a leadership charge. This was not the case at AB, where even if she took a step to create a vision for the organization, she would not receive a positive response, hence demotivating her. Accepting the new opportunity at the New York Common Retirement Fund would allow her to showcase her leadership skills to drive the strategy for the improvement of the fund's performance (Judge & Cable, 1997).

Secondly, the role acted as a career progression for her and diversified her experience. Previously, she had worked for the rating agency, based on which she entered the equity management industry. Her previous role had made her responsible for investing in high risk and low-grade securities to earn higher returns. These also included securities from developing emerged countries and showed huge potential. Hence, the position of Chief Investment Officer gave Vicki an opportunity to use her past knowledge and experience to bring about a revolution in the pension funds, given the overall struggling pension fund industry. The current numbers showed that the returns earned by the fund were less than the pension liability, increasing the probability of the fund being unable to make the pension payments to its 1 million participants. This was a huge challenge, and being able to pull it off successfully in the capacity of the CIO would add great value to the accomplishments of Vicki Fuller (Shen, Chanda, D'netto, & Monga, 2009).

Also, it should be noted that previously Vicki Fuller had worked in the private institutions. Accepting the offer by New York State Common Retirement Fund would give her an exposure to how the government operations work and the sources of revenue from the government. Hence, working on such a magnanimous amount of investment would allow Vicki to employ her investing acumen and bring about changes to transform the yields generated by the funds. She has never worked in the pension funds sector, which usually concerns with investing in low-risk assets to ensure a continuous stream of inflows. However, given the deteriorating risk-free rate, it would be essential for her to take measured risks to increase the yield without risking the loss of the investment to a great extent. Since this is her expertise, there are high chances of her pulling this off well. 

From childhood, Vicki had not been very well off spending her early days living at a very mediocre Cabrini Green Housing Society and could well relate to the problems faced by the middle and low classed citizens. Working in the pension funds would, therefore, also allow her to make a contribution in ensuring that the public is not deprived of its rightful right to a full secured pension. Hence, Vicki made the right choice by selecting the opportunity as she got a means to give back to the community (Clark, 2000)

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