New York invests in Yalie

At an Oct. 27 press conference, New York City Mayor Michael Bloomberg and Comptroller John Liu announced plans for an overhaul of the city’s pension funds. The proposal — centered on depoliticizing and professionalizing management of the funds — would be a historic one, they said, benefiting all New York City taxpayers by driving down pension costs.

High on Bloomberg’s list of individuals central to devising the proposed overhaul was Ranji Nagaswami SOM ’86, who Bloomberg said his office had been “lucky” to attract from the private sector. Nagaswami, serving in the city’s newly created position of chief investment adviser, had helped determine how the city might earn higher returns on its more than $100 billion in pension fund investments.

Yale

Bloomberg, Liu and labor leaders at the press conference unveiling the proposal said New York City can look to the techniques of other institutional investment systems, such as Yale’s endowment, in planning the overhaul.

“There is a better way to invest money and generate better returns for the city of New York.” Stephen Cassidy, president of the city’s main firefighters union, said, citing Yale and Harvard’s endowments. “The model out there is simple.”

Cassidy added that reforming the city’s pension plans to achieve high investment returns similar to those seen with Yale’s endowment would require time and an incredible amount of effort. Fortunately for the city — as officials continue to work out final details of the overhaul ­— Nagaswami has been on hand, equipped with her experiences from Yale both as a student at the Yale School of Management and a member of the Yale Investment Committee.

With years of financial experience behind her, Nagaswami said in a December interview with the News that different approaches are required in overseeing pension funds as opposed to a university endowment. Still, she has been able to apply much from her time in New Haven to her job in New York — evidence for which is found not only in her investment policy work, but also in her devotion to public service cultivated during her years at SOM and praised by her peers today.

LESSONS FROM THE ‘YALE MODEL’

Nagaswami was appointed to the Yale Investment Committee — a group that meets four times a year to review the University’s investment strategy — in the last quarter of 2008. Nagaswami and nine other committee members help oversee the University’s $19.4 billion endowment by approving strategy proposed by Chief Investment Officer David Swensen and the Investments Office.

University President Richard Levin said working with Swensen has definitely been a “good education” for Nagaswami — one that has likely contributed to her work in New York.

The “Yale Model,” pioneered by Swensen and emulated by other universities, relies heavily on equities and a broad diversification of assets, favoring illiquid assets such as private equity and real estate instead of more traditional securities like U.S. stocks and bonds. Swensen declined to comment for this article.

While the Yale endowment and New York’s pension fund must be approached in different ways and are thereby not always apt for comparison, Nagaswami said, there are overlaps in strategy.

“Managing a large pension fund is very similar to managing the Yale endowment,” University President Richard Levin said in December. “You want to provide strong average returns over time; you want to have very diversified set of investments to spread the risks of the portfolio.”

Pension costs have risen from less than 1 percent of the city’s budget in the mid-1990s to nearly 13 percent this year, Nagaswami said. Aiming to improve returns on the city’s pension investments and thereby reduce those costs, Nagaswami said she has addressed two main issues during her first year and a half as an adviser to Bloomberg: the makeup and governance of the city’s investment portfolio.

“Ranji has led the development of more sophisticated risk management and diversity strategies,” Commissioner of New York City’s Department of Finance David Frankel said in an email. “As important, she has championed changes to the governance structures of the Boards.”

In making suggestions about asset allocation policy to the city’s pension boards, Nagaswami said she has sought out advice from experts in her field, including her colleagues at Yale such as Senior Director of the Investments Office Dean Takahashi ’80 SOM ’83, Investments Office Director Peter Ammon GRD ’05 SOM ’05 and former member of the Yale Corporation Charles Ellis ’59.

Beyond the makeup of the portfolio, Nagaswami said she has been influenced by the way Swensen manages his team in the investments office and his relationship with the Investment Committee. Because issues of governance directly affect investment performance, Nagaswami has said the city would do well to emulate how the Yale endowment is run in three main ways: employing management staff of the “highest caliber,” making their compensation more competitive and delegating routine investment decisions to them.

These ideas about governance are indirectly incorporated into the city’s proposed overhaul. The five different pension funds in New York currently each have their own board with a total of 58 trustees. Under the reforms, the five boards would be combined into one with a chief investment officer separate from the political process responsible for managing the funds.

“Performance is not a given,” Nagaswami said. “All you can do as a trustee, which I am for Yale and which I am for New York City, is to create the conditions of success.”

COMMITMENT TO VALUES

Yale’s impact on Nagaswami began earlier than her work with the Investment Committee. Born and raised in India, Nagaswami attended Bombay University and with prodding from her father decided to attend business school at the Yale School of Management.

Though closer in age to Yale College students than her peers at SOM, Nagaswami was a lively, engaged student whose analytical abilities anticipated her future career in finance, said Sharon Oster, one of Nagaswami’s professors at the time and dean of SOM from 2008 to 2011. Nagaswami also met her future husband, Bo Hopkins SOM ’86, while a student at SOM.

While Nagaswami acknowledges the business skills she learned at SOM, where she now serves on the Advisory Board, Nagaswami said lessons on teamwork she gained during her time at the school have become more important as she made her way into senior leadership positions.

“I do remember Ranji well not only as an enormously capable management student but also as a person with an acute social conscience,” said Burt Malkiel, currently a professor at Princeton University and dean of SOM while Nagaswami was a student, in an email. “I always thought of her as the embodiment of what we were trying to accomplish at SOM — training people not only to serve the organizations they worked for but also to make a broader contribution to society at large.”

Though she had an opportunity to head a major asset management firm after working 23 years in the private sector, Nagaswami said a desire to serve society that had been cultivated during her time at SOM and work with the Aspen Institute, an international non-profit organization devoted to encouraging “values-based leadership,” caused her instead to reach out to Obama’s treasury team to see if she could be of any help.

Around the same time, Mayor Bloomberg’s office contacted her about the position of chief investment adviser. She began work in August 2010.

Roger Ibbotson, a professor at SOM who has reviewed some of the work his former student is doing in New York, said that although her knowledge of how Yale’s investment strategy has likely shaped her work in New York, she cannot approach New York City’s pension funds in the exact same way one would a university endowment.

For example, the amount of the city’s pension funds, which exceeds Yale’s endowment by roughly $100 billion, complicates implementation of policy while also allowing the use of more specialized investment teams, Nagaswami said. Possibly most important to consider, though, is the time and effort required to come even close to paralleling the performance of the Yale endowment, she added.

“Creating a culture like what David [Swensen] has built at Yale takes decades, and we are just now starting an effort to begin the professionalization and depoliticization process,” Nagaswami said.

But small steps do matter. As Bloomberg said when he announced the planned reforms at the October press conference, increasing asset values of the pension funds by only 1 percent will increase their worth by more than $1 billion, thereby reducing pressure on the city’s annual budget caused by pension costs.

The proposed overhaul would require details to be finalized, a process that could take a few months, and approval from New York’s state government, Bloomberg said in October.

Correction: Jan. 17 A previous version of this article mistakenly identified Peter Ammon GRD ’05 SOM ’05 as a member of the Yale Investment Committee. Ammon is in fact a director at the Yale Investments Office.

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