Elena Manola-Bonthond had big shoes to fill last year when she took over as deputy CEO and head of investment policy at the Sf4 billion ($4.2 billion) pension fund at CERN, the Geneva-based European Organization for Nuclear Research. Former CEO and CIO Théodore Economou had made the fund a pioneer in risk-based investing over the previous five years.
Manola-Bonthond, who oversaw safety management at CERN’s Large Hadron Collider before joining the fund in 2011, says her science background prepared her well for the task. “As a physicist, you are trained to read data, to understand what is significant and what is not,” says the 45-year-old native of Croatia. It took CERN’s physicists decades to find the Higgs boson, the so-called God particle that’s one of the fundamental building blocks of all matter in the universe. By contrast, she says, “the good thing about finance is you immediately see the impact of your actions.”
Prompted by a drop in returns last year to 3.31 percent from 7.76 percent in 2013, Manola-Bonthond is trimming CERN’s hedge fund allocation, to less than 10 percent from 16 percent, and culling the number of hedge fund mandates by more than half, to five or six. “The return we were getting out of the portfolio was relatively low — around 4 to 5 percent — compared with the fees we were paying,” she explains. For the remaining exposure Manola-Bonthond and her team have set a higher return target of 8 to 12 percent, compared with the old target of 3 percent net of fees. In essence, she believes fewer but higher-conviction bets will help CERN boost returns. She’s also looking to diversify the fund’s 20 percent real estate allocation, now based mostly in France and Switzerland, across Europe.
Finance, like particle physics, can pose some seemingly insoluble questions. CERN’s discount rate is pegged to ten-year Swiss government bond yields, for example. Those yields have dropped below zero this year, something that pension accounting rules never envisaged as a possibility. In response, Manola-Bonthond has commissioned a study of long-term asset returns that could influence future allocations. Still, she remains convinced that CERN can continue to achieve its real return target of 3.5 percent, and she retains faith in the fund’s risk-based investing model. “The model is about our process,” she says. “We think our processes are solid. We won’t change them on the basis of yearly results.”
This profile is one of 12 written for our 2015 European Investment Management Awards, which honors some of the best investors in the business. See also profiles of Lifetime Achievement Award winner Henrik Gade Jepsen, Centrica’s Chetan Ghosh, Lancashire County Pension Fund’s Michael Jensen, ABN AMRO’s Geraldine Leegwater, Varma’s Reima Rytsölä and AP4’s Magnus Eriksson. Check back tomorrow to read about Linde’s Christoph Schlegel and Inarcassa’s Alfredo Granata.
Follow Tom Buerkle on Twitter at @tombuerkle. Visit his blog, “The Globalist.”