Bob Pozen (Chairman, MFS Investment Management)

Bob Pozen is the chairman of MFS Investment Management which established the first mutual fund in the US in 1924. Today, MFS Investment Management, a subsidiary of Sun Life Financial of Canada, has more than $169 billion in assets under management, offering a wide range of products and services to investors, including more than 70 mutual funds, fixed & variable annuities, separately managed accounts, & retirement plans to retail customers, institutional investors, & insurance offerings. The firm has 15 offices worldwide, 2,400 employees, and more than five million shareholders.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors), Mr. Pozen addressed several issues surrounding sovereign wealth funds, including the source & size of sovereign wealth funds, their impact on capital markets, security & political concerns, disclosure & stability concerns, and protectionism & reciprocity. He made the following points:

• Mr. Pozen started his presentation with some background information on size & source of sovereign wealth funds, sharing from a McKinsey report that two-thirds of sovereign wealth funds assets are built on petrodollar or oil wealth with these nations seeking to diversify their assets away from the concentration on oil (primarily Middle East). Two other sources of sovereign wealth funds assets are trade surpluses (primarily Asia) and pension contributions (Asia & Australia)
  
• Mr. Pozen addressed the flow of sovereign wealth funds showing Asia - excluding China- as the leading source with 55% followed by the Middle East with 32% and China with 13%. The US at 37% is the leading destination of sovereign wealth funds followed closely by Europe at 35%, China at 21%, and Asia at 7%
• Mr. Pozen then addressed the impact of sovereign wealth funds in the US and international financial markets. He noted that Merrill Lynch, Citigroup, and UBS have all recently been capitalized by sovereign wealth funds
  
• Mr. Pozen then addressed security and political concerns with public opinion on sovereign wealth funds in the US decidedly negative - even among those who profess to know little about them. Mr. Pozen countered that sovereign wealth funds' investments tend not to be subject to many of the prevailing concerns about them stating that there are already many restrictions on foreign ownership of US companies, particularly in the crucial transportation, banking, and communications & broadcasting industries
  
• Mr. Pozen also challenged concerns about stability & disclosure with sovereign wealth funds, stating that sovereign wealth funds usually have long term investment horizons so they are not under liquidity pressure and that and there are US reporting mandates on all investors (e.g., 5% owners) regardless of source

Ron Ryan (CEO, Ryan ALM)

Mr. Ryan is the CEO and founder of Ryan ALM, which is focused on solving asset/liability problems through a disciplined structured systems, including custom liability indexes, liability beta portfolio, & portable alpha (liability hedge fund). Mr. Ryan is responsible for overseeing and analyzing the Treasury’s and developing indexes specific to them. Mr. Ryan is the creator of the first daily fixed-income indexes; the Lehman US Treasury indexes.

	CEO Summit XIV Guest Speaker Ron Ryan (CEO, Ryan ALM)

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors), Ron addressed the pension crisis and the need to align assets to specific liabilities. Mr. Ryan also discussed portable alpha and the proper LDI strategy and cover liability beta & liability alpha. He made the following points:

• Mr. Ryan started by defining the correct pension plans' objectives as “a game of costs not a game of returns” and that the main problem is that pensions need to be liability driven
  
• Mr. Ryan stated that the real reason we have a pension crisis is that interest rates have been declining since 1982 and liabilities have been rising. The US simply cannot afford a healthcare and a pension crisis simultaneously. Over 4,000 corporations have gone bankrupt due to pensions, and the Pension Benefit Guaranty Corporation funds the obligations with the expense born by the US taxpayers. According to the Pension Protection Act of 2006, corporations have seven years to make up their liabilities or face a big problem. Thus the name of the game is for pensions to beat their liabilities by 1-2-3% per year – not to earn a 6% or a 9% alpha
  
• Other problems relate to inaccurate liability valuations and the use of generic indices. For performance measurement purposes, there can be no generic index that behaves like an institution’s specific liabilities. Given the wrong index, you get the wrong risk-reward characteristics of the portfolio
  
• Ryan went on to say that, “a much better measure of risk (better than the Sharpe Ratio which is based on the 3-month T-Bill for example) is to use the information ratio which is a measure of how the assets behave versus the objective which is usually a liability for most institutions”
  
• Thus it is critical that the asset allocations for pension plans be liability driven and/or more tactical in nature. That is, as the funded ratio improves, the pension plans may adjust the asset allocations to become more conservative and “take some chips off the table.” Similarly, as funded ratios decline, asset allocations should adjusted to become more aggressive to improve the rate of return and the ability to meet the plan’s liabilities
  
• Mr. Ryan also pointed out that if you ask any corporation to define their biggest asset, they will inevitably reply that it’s their pension plan. If you ask any corporation to define their biggest liability, they will inevitably reply that it’s their pension plan. And yet, the pension plan director is typically missing from the corporation’s board of directors

Michael Steinhardt (Chairman, Wisdom Tree Investments)

	CEO Summit XIV Guest Speaker Michael Steinhardt, Chairman, Wisdom Tree Investments)

Mr. Steinhardt is the Chairman of Wisdom Tree Investments, which offers dividend and earnings-based index funds rather than traditional index funds based on market capitalization. Prior to joining Wisdom Tree Investments, Mr. Steinhardt founded Steinhardt, Fine, Berkowitz, & Company in 1967. Steinhardt, Fine, Berkowitz & Company achieved a performance track record that still stands out on Wall Street: 24% compound average annual returns – more than double the S&P 500 – over a 28 year period, accomplished through short-term strategic trading, including stocks, bonds, long & short options, currencies, all with time horizons ranging from 30 minutes to 30 days.

After an introduction by Kevin Malone (President, Greenrock Research), Mr. Steinhardt addressed his views on the state of the hedge funds industry as well as how and why he started his hedge fund and how and why he eventually closed it. Mr. Steinhardt also discussed his involvement with Wisdom Tree Investments. He made the following points:

• Mr. Steinhardt started by giving a history of how and why he started his hedge fund saying that, “the hedge fund industry is the best paid industry bar none, better than star athletes, better than entertainers.” Mr. Steinhardt also addressed why he decided to close his firm in 1995 stating that, “he found the lows lower and the highs less exciting and he was not able to separate self from performance returns." He added that, “you don’t remember the good trades – you only remember the bad ones”
  
• Mr. Steinhardt next addressed the current economic state - suggesting the country, economy, the financial industry and most individuals are too highly leveraged. He suggested that we are likely in a recession, but we should think about the possibility that we could be in for something worse as the country as a whole has never before been this leveraged, magnifying results both positive and negative. Mr. Steinhardt looked at the ratings agencies as one area of improvement saying that, “a good loan is a good loan until it becomes a bad loan”
• Mr. Steinhardt went on to discuss changes in the hedge funds industry. He started by saying that, in the 1980s the hedge funds industry was, “smaller counter culture that offered nirvana for people who wanted to be entrepreneurs” and that they were measured only in performance. In answering a question about the lost art of stock picking by Bryce James (CEO, Smart Portfolios), Mr. Steinhardt answered that, “there is still an army of stock pickers but they are being drowned by huge companies as they need mobility so it isn’t working with where the stock pickers are going”
• Steve Deschenes (Chief Marketing Officer, Retirement Income Group, Mass Mutual Financial Group) asked about moral hazard and if the hedge fund industry compensation plan encourages hedge fund managers to swing for the fences. Mr. Steinhardt replied that, “with 2 and 20 you should make enough to not swing for the fences and that when people had nothing to lose they usually lost. Mr. Steinhardt also noted that the industry has changed with much bigger hedge funds and that 1% of $8 billion is a good revenue line. He also noted that there has been a shift to larger institutional clients who are more accepting of moderate returns and a stable market while previously hedge fund managers wanted market volatility because, “you were smarter than the other guy”
• John Rooney (Managing Principal, Commonwealth Financial Network) asked if the hedge fund industry needed more regulation, to which Mr. Steinhardt replied that, “the market operates with extraordinary liquidity so current regulation seems sufficient”
• Mr. Steinhardt concluded by describing his efforts at Wisdom Tree, a fundamental ETF firm with $4.5 billion in assets. While describing the difference between his hedge fund and Wisdom Tree he said that, “the hedge fund started with $7 million and was profitable on day one. But with Wisdom Tree he has been here for three years and is not yet profitable” Mr. Steinhardt went on to say that, “believes the low cost annual dividend or earnings weightings of the Wisdom Tree ETFs will get about average rates of return” and that he is excited about this relatively new way to participate in the market allowing retail investors to manage money for themselves