“It’s a challenge that will ultimately derail our success.” That’s how Steve Moseley, the then head of alternative investments at Alaska Permanent Fund Corporation, described the talent crunch facing many US public institutions in a Capital Allocators podcast last year.
True enough, recruitment and retention have since become a major issue for the $81 billion sovereign wealth fund. APFC has witnessed an “unprecedented” number of staff leaving this year, according to a July board meeting. Moseley himself is among them: the former StepStone president returned to New York in June to join Wafra as a managing director after almost eight years in Juneau.
“The root cause is a dated compensation structure that is materially below par,” APFC’s acting chief executive Val Mertz noted during the meeting. In an attempt to stem the outflows, the institution has included an incentive scheme for investment staff in its 2022 fiscal year budget and pledged to review compensation.
Whether APFC’s efforts will have the desired outcome remains to be seen. After all, three-quarters of its public fund peers and virtually all private sector peers already offer incentive compensation, per a report from data platform McGlagan. Even so, retention remains a prevalent issue.
New York City Retirement Systems is another that has seen multiple senior losses. The institution, which oversees $265 billion of assets across five pensions, has seen at least six departures since May last year, including chief investment officer Alex Doñé and head of real estate Yvonne Nelson.
Other US public institutions that have recently lost senior real estate staff include the Oregon State Treasury, whose senior real estate investment officer Anthony Breault departed for Denver-based private equity real estate firm Ascentris after 16 years at the pension; and Texas Permanent School Fund, whose long-time senior real estate portfolio manager, Ali Houshmand, opted to join EQT Exeter, the real estate platform of Swedish private equity firm EQT.
Staff turnover, especially at the senior level, is a big deal for LPs. Personal connections and longstanding relationships matter in real estate. Losing executives with decades-long experience and intellectual capital when it comes to hunting the best opportunities can be debilitating.
The stakes have never been higher. Not only has the workload for LPs increased – funds were seeking $310 billion as of July 21, according to PERE data – but so too has the complexity of the tasks at hand.
In private equity, for example, single-asset deals have become so time sensitive that many investors have insufficient time to process and manage such transactions, forcing them to sell by default. “For an LP, [single-asset deals] take about 20 to 40 hours of work – it’s the last thing you want to see,” a former senior executive at a US LP told affiliate title Private Equity International last week.
With fundraising congestion and difficult market conditions requiring investors to look particularly closely at opportunities on their desk, the need for experienced staff is only likely to increase. LPs must find ways to attract and retain key talent or risk being left behind.