What Does Nevadas $35 Billion Fund Manager Do All Day?

Nothing

Nevada goes passive to beat peers; BLT or tuna

Steve Edmundson, chief investment officer of the Nevada Public
Employees Retirement System, works alone in his Carson City office.
Updated Oct. 19, 2016

Steve Edmundson has no co-workers, rarely takes meetings and often eats
leftovers at his desk. With that dynamic workday, the investment chief for
the Nevada Public Employees Retirement System is out-earning pension
funds that have hundreds on staff.

His daily trading strategy: Do as little as possible, usually nothing.

The Nevada systems stocks and bonds are all in low-cost funds that mimic
indexes. Mr. Edmundson may make one change to the portfolio a year.

News doesnt matter much.

Will the 2016 elections affect his portfolio? No.

Oil prices? No.

He follows Fed Chairwoman Janet Yellen , but theres a difference

between watching and acting.

Mr. Edmundson, 44 years old, has until recently been a pension-world

outlier. Other state retirement systems turned to complicated investments
and costly money managers to try to outperform markets with algorithms
and smarts.

His strategy is to keep costs low and not try beating markets, he says.
Were bare bones.
On his bare-bones desk is an inbox, a stapler and a tin cup of paper clips
and business cards. A desk behind his swivel chair sports his printer and
family photos. He has no dedicated Bloomberg terminal and doesnt watch
CNBC.
He brings lunch in Tupperware. Great days, he says, are when his wife
makes luncha BLT or tuna-fish sandwich. Otherwise, it is leftover fish or
salads. I dont want to spend $10 a day for lunch.

From his one-story office building in Carson City, Mr. Edmundson

commands funds whose returns over one-year, three-year, five-year and
10-year periods ending June 30 bested the nations largest public pension,
the California Public Employees Retirement System, or Calpers, and
deeply-staffed plans of many other states.

Nevadas $35 billion plan is dramatically smaller than Californias

roughly $300 billion, notes Calpers spokeswoman Megan White. That
said, Nevada demonstrates the benefits of reducing the complexity, risk,
and costs in a portfolio.

Doing nothing is harder than it looks, says Ken Lambert, Mr.

Edmundsons predecessor and only outside investment-strategy
consultant. Harder, he says, because of the restraint needed to practice
inaction.
Now many public pension funds are embracing Nevadas do-nothing
approach as they wrestle with dwindling cash and low interest rates.
Calpers is severing ties with roughly half the firms handling its money. New
York City this year slashed its hedge-fund commitments.

U.S. public pensions have about half their traditional stocks in low-cost
index funds, industry consultants say, more than double a decade ago.

The pension world, says Stephen McCourt, co-CEO at pension-

investments consultant Meketa Investment Group Inc., is definitely
migrating toward Nevada.
It isnt migrating all the way, says Vijoy Paul Chattergy, the Hawaii
pensions chief investment officer and a friend of Mr. Edmundsons.

If I could sit on the beach in Maui and phone it in every day, Id do it,
says Mr. Chattergy, whose plan, which trails Nevadas in returns, uses a
variety of strategies. But I dont think thats the way the world works.
Thats why we have the approach we do.
Even Mr. Edmundson cant resist studying investment strategies. I spend
a lot of time researching things we ultimately dont do.
On volatile market days, though, he gets to go home on time and chill out.
After Britons in June voted to leave the European Union, throwing global
markets into upheaval, he left at his usual 5:00. He fell asleep at his
normal time that Brexit night.

A stock-market drop of several percentage points, he says, isnt even

going to get my heart rate up.

Mr. Edmundson got exposed to finance writing graduate-school papers

about monetary policy at the University of Nevada, Reno.

He traces his philosophy to what he learned working for a Bozeman, Mont.,

wine distributor. He marketed the best-selling wines without highlighting
the grapes origins or tasting notes.
The wine industry tends to be portrayed as something complicated and
difficult with fancy terminology, he says. On the investment side, its
really similar. You can focus on the small details rather than the big
picture.

When Mr. Edmundson joined the Nevada plan in 2005 as an analyst,

roughly 60% of its stocks were in indexes. He turned it even more passive
after becoming chief investment officer in 2012. He fired 10 external
managers, and, by 2015, all of its stock and bondholdings were in
passively managed funds.

Its outside-management bill is about one-seventh the average public

pensions, according to Nevada plan documents and Callan Associates,
which tracks retirement-plan expenses.
If Nevada consumed a typical Wall Street diet, it would pay roughly $120
million in annual fees. In 2016, Nevada paid $18 million.

Despite shunning Wall Street help, Mr. Edmundson returns emails and calls
from money managers pitching him products.

The typical call lasts about five minutes. He lets callers down gently,
deflecting advances by concluding the offering isnt a good fit and
thanking them for the information.
Ive become very good at saying no, he says. I dont try to lead them
on, so they dont get false hope.
Mr. Edmundson spends much of his days preparing board-meeting
materials and on administrative tasks. Despite the investment success,
Nevada only has about 73% of assets needed to fund future retirement
obligations to workers.

One recent day, he started a PowerPoint presentation on interest-rate risk

and discussed investment targets with Nevada pension officials before
breaking for leftover bucatini pasta with bacon atop a salad.

He sipped coffee from his DAD mug, the days fourth cup from the office
pot he co-funds with other workers in the building.

He generally doesn't work outside 8 a.m.-to-5 p.m. hours. He commutes in

a 2005 Honda Element with over 175,000 miles on it. His 2015 salary was
$127,121.75, according to a Nevada Policy Research Institute database.
With no one else on his investment staff, Mr. Edmundson rarely uses his
conference table and four extra chairs. He volunteered his office to
pension-fund employees who work for accounting or benefit calculations.

Last month, a wall went up dividing the room. Im not going to complain
about my office, he says. It was too big.

Write to Timothy W. Martin at timothy.martin@wsj.com