Perry begins final lap at the Minnesota state agency that actually makes money

Mansco Perry, who is nearing retirement after leading the Minnesota State Board of Investment (SBI) for nearly a decade, jokes that he has a vested interest in having a successor who is more skillful than him.

But Perry's track record won't be easy to beat. Under his leadership since 2013, the agency's assets have nearly doubled to $130 billion from $68 billion.

"Mr. Perry has provided strong leadership to the State Board of Investment, as evidenced by its excellent returns throughout his time as executive director," former Gov. Mark Dayton, who appointed Perry, said in a statement.

More than 900,000 Minnesotans, active and retired members of three statewide retirement systems, depend on the agency for financial security. After Perry announced last month that he'll retire this summer, the SBI formed a committee to recommend a successor. Gov. Tim Walz will make the appointment.

Perry, who turns 69 in April, is a lawyer by training but has spent nearly his entire career in asset management, first at Minnesota companies and, in 1990, at the SBI. Perry left Minnesota in 2008 to become chief investment officer of the Maryland State Retirement and Pension System but returned to St. Paul to serve as chief investment officer at Macalester College for three years. Dayton appointed him to lead the SBI in 2013.

A lifelong baseball fan, Perry grew up in New Jersey dreaming of becoming general manager for the New York Yankees. Instead, he collected baseball memorabilia, including an impressive number of signed baseballs, and once ran a baseball card trading business.

In an interview, Perry described why it's easier to manage assets for state employees than himself. Some excerpts:

Q: What else makes the SBI unique among state agencies?

A: We're unique in that, you know, our primary purpose is to make money. I've been pretty proud of the fact that we're pretty instrumental and vital to the economic health of Minnesota. For each pension dollar the state pays to a retiree, 72 cents of every dollar has come from investment dollars. It might be a little higher now.

Q: How does managing a multibillion-dollar investment fund for three statewide retirement systems and tens of thousands of retirees differ from individual retirement investment?

A: Well, here's the big secret. I think it's a lot easier. When we're investing for the pension plan, we're able to truly take a long-term horizon. Looking out 30-plus years. When we're thinking about it, and the way we operate things, we were pretty keen on making certain that we have adequate liquidity to make sure benefit payments are made every month. But you know, we can look out pretty long-term.

The pension plan has done significantly better in their portfolio than I have done in mine.

Q: How has the SBI allocated its funds for the pension plans?

A: With the pension plan our asset allocation is pretty equity oriented. Our current target allocation is 50% public equities, 25% fixed income and 25% private market assets. To the extent that we're not at the full 25% in private market assets, we put the difference between the actual and our target in the S&P 500. So all told, I'd say that we're pretty close to being an 80/20 equity portfolio.

Q: Over your tenure as executive director you've shifted much of the public equity portfolio to about 75 to 80% passive investment styles. What led to that change?

A: Historically, we had had a third passive, a third active and a third, what we call semi passive, which was enhanced indexing. And our performance overall wasn't stellar, I mean it was disappointing. We had a lot of periods of under-performance. Gov. Dayton, when I interviewed for the executive director position, the only investment question he asked me, or wasn't really a question, but he said, "The one thing I'd like you to do is look at why aren't we doing more passive investing."

But I really didn't change the portfolio until 2016. I've probably been a passive hawk since then. One primary reason is for our active equities; we've got over $40 billion in public equities.

Active managers we will pay between 20 and 60 or more basis points a year (in fees). Right now, the marginal cost of me putting another dollar on my passive domestic equity portfolio — it's about a fifth of a basis point.

Q: Your predecessor as executive director, Howard Bicker, started in 1981 when the SBI had a portfolio of $4.9 billion and a staff of 25. How has the SBI staff changed since?

A: I joined the staff in 1990. Still a staff of about 25, and we had a whopping $16.3 billion. I left in 2008, we were at $59.4 billion. I came back in 2013, we were at $68.6 billion. And how many staff members do you think we had? Twenty-five. Since I've been back, we've gone above 25, but we haven't hit 30. And we dropped back to 25 a couple of times.

Q: Who were some of your early investment influences and mentors?

A: I attribute a lot of the success I've had on the investment side to Howard Bicker. And a lot of it was Howard was pretty plain spoken. He liked people to think that he's just a kid from Winona. I'd say he is one of the sharpest people I've ever met. He had an approach to keep things simple and manageable. Yeah, I'd say that I haven't always agreed with that, but I have to say that that's sage advice.

Q: How can the investment industry attract more women and people of color?

A: I think it's more of a societal issue than an industry issue.

How did I get in the industry? When I was a college senior, I was thinking about going to law school. I didn't know about business school until some of my classmates told me I could make $12,000 a year if I graduated from business school. That was instant motivation back in 1974.

So I'd say that there probably needs to be a big push on not only financial literacy, but knowledge of what opportunities are available. And there needs to be, particularly with people of color, just more focus on better education. So that's why I look at some of these issues as being societal.