Excerpts from interview with Jack Marco, chairman, Marco Consulting Group (December 8, 2014).
“In the beginning, there was stiff opposition to the concept of ETIs, and many pension fund principals were hostile to the idea. We thought of this as common sense, and construction pension funds became interested in this as well. It made a lot of sense to invest pension funds in real estate and private equity, and to do it in a way that maximizes the skills and knowledge of responsible contractors, companies and union workers.” -- Jack Marco
Jack Marco, Marco Consulting Group (MCG), has been one of the smartest and dedicated pension investment “aviators” on the planet, as he found a way to navigate entrenched barriers and stiff political opposition to chart new directions for responsible investment. As we say in the new Responsible Investor Guidebook, it wasn’t just investment innovation that won the day, it was hard work, sheer determination and collective vision. We’re pleased to present this short interview with Jack that was conducted for the new book. While we understand that Jack may be stepping back a bit in terms of his firm, his steady hand will always be with us.
Can you tell us about your firm, and how you got interested in the pension world?
I came from politics, working for Congressman Abner Mikva. For 10 years before that, I was a math teacher. I thought this might be a good place to work with labor. I began my career as an investment consultant in 1977 when I joined A.G. Becker, Inc. As Senior Vice President, I specialized in multi-employer plans. In 1983, SEI Corporation purchased the consulting division of A.G. Becker and named me the National Manager of its Taft-Hartley Funds Evaluation Services. In January of 1988, I left SEI to form The Marco Consulting Group (supplemental source: II, 2013).
You’ve been a long-time leader in the pension community in terms of alternative investments that partner with and respect workers and unions. How do you view those efforts to invest responsibly in housing and real estate and then private capital? What are your views on some of the newer arenas, such as such as infrastructure, renewable energy?
In the 1970s, we held our first discussions with public pension funds about economically-targeted investing (ETIs). In the beginning, there was stiff opposition to the concept of ETIs, and many pension fund principals were hostile to the idea. We thought of this as common sense, and construction pension funds became interested in this as well. It made a lot of sense to invest pension funds in real estate and private equity, and to do it in a way that maximizes the skills and knowledge of responsible contractors, companies and union workers.
So, we started this discussion in Illinois, and I was put on a public pension board, the Illinois State Board of Investment. Initially, we said, let’s interview 5 RE managers. But they were not finding interesting managers in this regard. So, I asked, Why not go to some new managers?
Along the way, various federal administrations have either supported or hindered the ETI cause. In our next battle around worker-friendly investments, the Reagan Administration threatened to prosecute. The Clinton Administration was more positive. They supported the idea of achieving maximum returns for beneficiaries, while at the same time ensuring that beneficiaries wouldn’t suffer from those investments.
We had more support for investing in quality construction projects, projects completed on time, and projects that also guaranteed good returns. Our pension clients were the majority owners of the branded housing funds. Eventually, responsible multi-employer and public retirement funds, along with other like-minded investors, began investing in ETIs, although adoption was slow to catch on.
We need the AFL-CIO to apply more pressure around all of this. I remember a survey of pension consultants several years ago, asking – how much do you participate in worker-friendly funds? It was a very low number.
In our new book, we will be exploring the idea that the capital stewards should work together to defend and expand retirement security, but also work towards growing the scale of responsible investments in the real economy. What is your view on that? How do we do that?
Prior to 2006, it was easy to go to pension funds to have this dialogue, but then the Pension Protection Act (PPA) was passed, and it became more difficult. If the fund is in the red zone, the mantra became, “Go out and get the best return, and don’t give a damn about anything else.”
Market volatility and the PPA made us look short term. The PPA is really focused on achieving returns in the next 15 years, not 30 years. The investment horizon is now so slanted toward the short term.
It used to be that pension funds delivered the annual report annually every March. Then in 1990s, that went to quarterly reports, and now it’s monthly reports. Unfortunately the Democrats gave up the fight to contest the worst aspects of the PPA in order to obtain continued support for the Pension Benefit Guaranty Corporation (PBGC).
Most of the funds affected are single employers. They suffered due to rigged returns assumptions—on the order of 9-10%--and then went under. In the PPA, Congress said “Make sure that all costs are currently funded. 30 years is too long; shorten all up.”
In 2006, the markets were hot, but then the financial markets collapse occurred, and funds lost, on average, 25% of their assets. So, in 2014, Congress passed another pension reform bill to okay the cutting of retirement benefits in some cases, and to allow more DC hybrids. These could turn out to be terrible solutions.
On the progressive side, I’ve been involved with the RFK Compass Foundation, and have been in meetings that discussed the importance of environmental, social and governance (ESG) criteria in investment decisions, and how to implement those policies. Workers and unions need to show up in all these policy discussions, to align the discussions of workers’ capital with efforts to support the minimum wage and the right to unionize. Compass meets several times around the country, promoting workers’ rights.
In the long run, we need to push for long-term investment. Applying ESG criteria to investments makes sense over the long term.
The North Shall Rise Again, by Randy Barber and Jeremy Rifkin, was a book that I really liked, and it is still relevant, some 37 years later.
The one pension investment arena that has seemed less productive over the long run, in terms of public equity markets, has been in investment screening.
There are new efforts to explore the design of DB hybrids on the horizon. These efforts may have some merit, as long as the trustees of those funds remember to align the investment decisions with the long-term interests of beneficiaries.
In terms of PE firms, why don’t we insist on responsible contractor policies (RCPs) and neutrality clauses, similar to what we did in labor-friendly real estate.
In terms of new responsible fund managers, we need to find experienced investors and get them to do it our way. Worker-friendly PE firms didn’t exist until the last 15 years or so. If you’re calling yourself worker-friendly, you need to be supporting workers’ rights to organize your portfolio companies. That’s not always happening.
Jack Marco received his B.S. in Mathematics from Lewis University and continued his graduate studies at Purdue, Northwestern, and Northern Illinois Universities. He became a high school math teacher before joining U.S. Representative Abner Mikva as his Administrative Assistant. At age 26, he served as the Director of the Illinois Environmental Protection Agency. He then went on to serve as a Director to the Federal Home Loan Bank of Chicago. In 2000, he was appointed a Trustee of the Illinois State Board of Investment. He is currently a Trustee of the National Labor College, a Board Member and Treasurer of the Mikva Challenge Grant Foundation, a Board Member of American Rights at Work – Jobs with Justice. Jack has also taught a course on investment consulting as a Lecturer at DePaul University’s Graduate School of Commerce (from Institutional Investor, 2013).
Marco Consulting Group (MCG) provides investment consulting and fiduciary services to investors with total assets worth nearly $150 billion. The firm helps its clients select investment products and investment managers that not only provide solid investment returns, but also social and other economic benefits. As a result of an employee buyout at the multiemployer pension fund consultant, the employees now co-own the firm with Mr. Marco and Tom Mitchell, co-founder and vice chairman.
Clients can utilize the firm’s investment proxy services to engage companies whose stock they own, to bring about responsible change without changing the investment mandate. Depending on a client’s needs, the firm helps to incorporate the desired level of responsible investments into the client’s investment portfolio.