Episode summary
Two Stints as Interim CIO: Howard Hodel on Risk, Rebalancing and Reassuring the Board
Summary
Howard Hodel describes two very different interim CIO assignments at the Employees’ Retirement System of the State of Hawaii. In 2018, he says the transition was mainly about reassuring staff and keeping a portfolio restructuring on track after Vijay Chatterjee’s departure. By 2022, Elizabeth Burton’s exit came after years of strategy work, so Hodel’s acting role focused more on finishing searches for consultants and a custodian while preserving the portfolio plan she had put in place.
He argues that the fund’s success came from a risk-aware, highly liquid structure designed to stay near the path to full funding with a 7% return target. Roughly two-thirds of assets sat in growth strategies, while the diversifying sleeve provided stability and gave the team the ability to rebalance daily during the 2018 selloff, the COVID crash, and the 2022 downturn. Hodel says that flexibility saved “hundreds and hundreds of millions of dollars” and let the fund buy distressed assets when markets were weak.
On strategy selection, he favors systematic global macro and says alternative risk premia did not work well as a stabilizer. He also points to illiquid diversifiers, including early bets on private credit, data centers and other unusual assets, as examples of the team’s willingness to explore where risk and return could be attractive.
Key takeaways
- Hodel says the 2018 interim CIO transition was mostly about calming staff and keeping an existing portfolio plan moving.
- He says Hawaii’s fund targeted a 7% return by keeping about 2/3 of assets in growth strategies and using a liquid diversifying sleeve for rebalancing.
- Hodel says daily rebalancing during the 2018, 2020 and 2022 drawdowns helped the fund capture “hundreds and hundreds of millions of dollars” in rebalancing profits.
- He says systematic global macro worked well, while alternative risk premia was a poor stabilizer and produced negative alpha in one manager selection.
- He says the fund was willing to back unusual illiquid opportunities like sports franchises, spectrum and data centers when the board supported it.
Notable quotes
“we were on we were on a a track already and I think it was more bridging and keeping us on that track”
“the trustees' main goal in the portfolio was to stay within a reasonable distance of the path to full funding”
“the key for us was the way we structured the portfolio with about 2/3 of the portfolio in growth assets”
“being able to rebalance you save hundreds and hundreds of millions of dollars in rebalancing profits”
How the episode opens
Welcome to the Allocators Playbook. Today's guest has spent decades looking after other people's retirement security. Welcome to the show, Howard Edel.
Howard's career has taken him across banking, consulting, and public pensions. In 2014, he joined the Employees' Retirement System of the State of Hawaii. He rose to the Deputy CIO and Chief Risk Officer, overseeing the Diversifying Strategies Portfolio, a multi-billion dollar pool of capital.
Twice, when the fund needed steady leadership, Howard stepped in as interim CIO. The first time was in 2018 after Vijay Chatterjee's departure. He took the seat again when Elizabeth Burton resigned.
Few people are trusted to lead the pension fund's investment office once. Being asked a second time says a great deal about how his colleagues and the board saw him. Let's get into it, Howard.
So, Howard, you stepped in an acting CIO role twice in 2018 and 2022. How did these two stretches differ, if at all, and in in what way did the board and the staff change? How did the communication change in these two times?
Well, they were two very different situations when I stepped in. So, it was 2018 and there's all kinds of different issues that were coming up in that period of time. And then, the CIO left and just wished that us or at least I was in the office when he came in and told me that he was leaving and kind of wished us all good luck, it was a pleasure working with us, and that was that.
And then, the next day, the we heard the the news formally, and Vijay was a very a talented guy. You know, he he's very good at communications, externally well-known, and so they it took actually a couple of weeks, but then the truck executive director came to me and said the trustees decided they want you to run the portfolio in the interim, and we're going to go out and do a search, and the staff was very pleased.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- interim cio transitions
- institutional portfolio rebalancing
- pension fund liquidity
- risk management and communication
- private credit and diversifying strategies
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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