Michael Williamson

Michael Williamson, executive director of the State of Wisconsin Investment Board, oversees the state's retirement funds.

Michael Williamson holds the keys to $80 billion, money that more than half a million people are counting on to pay their bills when they retire.

Williamson is the new executive director of the State of Wisconsin Investment Board (SWIB), the agency that manages the Wisconsin Retirement System's two trust funds.

No stranger to Madison or to Wisconsin state government, Williamson succeeds Keith Bozarth in SWIB's top job in June, after serving as director of the North Carolina Retirement Systems and most recently, deputy director of the District of Columbia Retirement Board.

Holding the reins on the retirement funds of thousands of people is not what Williamson thought he'd be doing when he was growing up in Surf City, N.C. The small, tourist community is on Topsail Island, a barrier island known as a sea turtle sanctuary and as a place where legendary pirate Blackbeard is thought to have hidden his illicit treasures.

Williamson's dad ran Barnacle Bill's Fishing Pier, a seafood restaurant, campground and arcade; his mother was head waitress at the restaurant and Williamson cleared tables and cleaned up. It was a blue-collar town with a strong work ethic, recalls Williamson, who spent his teenage years on the mainland, in Waynesville, N.C., after his parents divorced.

Williamson thought he wanted to become a biologist. But after earning bachelor's and master's degrees in public administration from the University of North Carolina at Chapel Hill — he was the first in his family to attend college — he landed a job with the town of Waynesville, obtaining rights-of-way from property owners for construction of a sewer line.

It was the start of his career in public service and led to stints that included assistant to UW-Madison chancellor Donna Shalala, policy assistant to Wisconsin Gov. Lee Dreyfus, and chief of staff for Madison Mayor Joe Sensenbrenner.

Back in Madison now after 17 years away, Williamson still wears his signature Stetson cattleman's hat — or summer straw hat — and Southern charm as he leads 140 employees at SWIB, 121 E. Wilson St.

With more than 560,000 current and former public employees, Wisconsin's public pension plan is the nation's ninth-largest. North Carolina's is No. 10, with $72 billion in assets and 850,000 participants.

Q: What made you want to return to Wisconsin and head the investment board?

A: I'm delighted to be back, both back in the state and to be in this job. I starting working for the state in 1979 and quickly learned about SWIB's reputation. They are one of the gold standards in the public pension industry. SWIB has an excellent reputation for professionalism and sophisticated investment strategies. I have found a very engaged and conscientious board of trustees and a very professional and skilled staff.

I have been working in the public sector for 36 years, and this is the best team I've ever worked with.

Q: What makes SWIB different from the pension plan managers in other states?

A: The state Legislature and the governor have given us flexibility and tools to manage our portfolio, and that makes a huge difference. We have budget and compensation flexibility. In 1999, the average job applicant at SWIB had six months of experience; now it is seven years. Incentive compensation helps us get and keep good people. It's a combination of creating a good culture in the organization and paying people a fair wage.

Q: A study released in June by the Pew Center on the States found that U.S. states had a combined shortfall of nearly $1.4 billion in their pension funds in 2010 and Wisconsin was the only state in the country whose pension system was fully funded. How do you explain that?

A: There are three main reasons: The plan design that requires shared risk; consistent contributions by the state and public employees; and solid investment returns. Every dollar that we produce in investment returns is a dollar that employees, employers and Wisconsin taxpayers do not have to pay.

The shared risk system is very unusual. It says that each year's returns are smoothed over five years. Many retired public employees are in their fourth year of reductions in their pensions, and unless something spectacular happens to the stock market, pensions are going to go down again next year. We are still making up for the market's decline in 2008.

I understand how painful it is for retirees to have their benefits reduced. But for some, their benefits have tripled since they retired.

In 2001, 50 percent of public pension plans were more than 100 percent funded. They made so much money in the stock market in the 1990s that some states increased benefits. And then 2001 hit. Wisconsin has had integrity in terms of its funding of the pension plan.

Q: What is your investment philosophy?

A: The key to investment success is asset allocation and diversification. SWIB does those two things especially well. Now we're into private equity, real estate and hedge funds, to a small degree. Approximately 50 percent of the assets of the Core Fund — the main Wisconsin Retirement System Trust Fund, with $74.8 billion — are in the stock market, and they represent 84 percent of our risk. Just by the nature of the stock market and the swings it makes, it has more risk associated with it than other investments. That is why diversification of investments is so important.

Also, we have more control now over the way we invest. Fifty-five percent of our assets are managed in house by SWIB staff, up from 26 percent in 2009 and 21 percent in 2007. We can do it for one-third of the cost of contracted investment managers, and we are expecting to save $39 million in 2013 by doing that.

Q: What are your goals?

A: I am delighted with the situation that's here, and my goal is to stay the course. This is one of the most difficult times to make money in living memory. We are making zero on cash. This industry is not for the faint of heart.

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