Institutional Investor is proud to recognize leaders within the allocator community for their outstanding contributions to portfolio development at the second annual AlphaEdge Recognition Dinner. Prior to the event, we sat down with Shepard Farrar, CFA, recognized in the category of Most Influential Women in Investment Management.
Shepard translated her French skills to rise from secretary to her current role as Chief, Investment Management at the Inter-American Development Bank’s retirement Plans. During college at Princeton University, where she earned her bachelor’s degree in Political Science, her work in French agriculture policy led her to equity research at Boston asset manager Scudder, Stevens & Clark (now Zurich Insurance Co.) and Sun Life of Canada.
After she earned her CFA, she spent two years in Liberia and Mali, West Africa as a technical advisor to local NGOs on micro finance and other community economic development projects. Returning to complete her MBA in Global Economic Development from Eastern University, she worked at Lehman Brothers as a fixed income analyst, managed employee benefit plans for CoreStates (now Wells Fargo) and trust portfolios for Riggs (now PNC) banks, created multi-manager portfolios at Merrill Lynch and oversaw U.S. and private equities at UMWA H&R Funds and the National Railroad Retirement Investment Trust. Joining the $152 billion bank, Washington, D.C.-based IADB offered a unique opportunity to manage a diverse portfolio of retirement plan assets for an institution matching her passion for international economic development.
The IADB, founded in 1959 as a partnership between the United States and 19 Latin American and Caribbean countries, is the main source of development financing for Latin America and the Caribbean and promotes education, infrastructure, climate action and diversity (among other fundamental issues) toward reducing poverty and improving lives. Ms. Farrar manages over $7.5 billion in five retirement plans invested across 16 asset classes including publicly traded equities and fixed income, tactical asset allocation, public and private real estate and infrastructure.
The following has been edited for length and clarity.
What is the biggest challenge facing the industry today?
I would say it is transformational technology. We are investing for retirement plans whose assets must deliver returns in excess of the growth of liabilities, and those assets will succeed in delivering attractive returns if they effectively manage transformational technologies, including renewable/climate adaptive technologies, AI, infrastructure, hybrid retail (Internet plus brick and mortar), cyber-risk, digital, et cetera: From the investment perspective, transformational technologies will impact the returns that we will see through investments, while other types of transformation, like AI, will impact overall economic growth and the evolution of the labor market.
From a human perspective, I think managing the new paradigm of work is really the biggest challenge, both opportunity and potential danger. We have benefited from the IADB’s ability to hire from Latin America, the Caribbean, Europe, Asia and North America – and have also effectively utilized expansive telework and hybrid modalities, to bring superb talent to the team. Although the pandemic was exceedingly difficult particularly for those who were far from family for over a year, we have broadly expanded our use of hybrid technology to engage the team, have developed better systems, processes, automation and dashboards. We continue to innovate and encourage the team to grow, so we can attract the best and brightest from around the world.
What part of your portfolio are you most excited about?
Related to the investment portfolio, we have a balance between return-seeking and liabilities-hedging assets. The return-seeking used to be primarily developed markets equities, but now has a significant portion in real assets (18%), credit strategies (high-yield and emerging markets fixed income, and tactical asset allocation, totaling 12%). Real assets are linked to inflation – real estate and infrastructure, as well as, in our liabilities-hedging segment, U.S. TIPS (10%).
Our return-seeking real assets are somewhat unique – they comprise four asset classes (public and private real estate, public and private infrastructure) and are sensitive to inflation. The asset classes also adapt to market trends – such as growth in real estate’s holdings of datacenters and student housing, infrastructure’s investment in essential assets (railroads, utilities, air/seaports) and (for public infrastructure) companies that build equipment used in infrastructure. Not only do we believe that inflation is likely to remain higher than in recent decades, but as there’s an enormous need for new/improved infrastructure, there’s a fiscal/economic tailwind behind the asset classes.
We’ve also incorporated tactical asset allocation (6%), which is similar to hedge fund macro strategies, but priced more attractively (70 bps instead of 2% and 20%), with extensive monthly information (actual holdings vs. exposures) and detailed analyses of why actions are being taken, which we can utilize in our own analyses and brainstorming.
Who are your mentors and what made you get into this industry?
In my first job, it was kismet. Senior year at college, I had hoped to get into a credit program at a commercial bank but didn’t. I had played pickup soccer with my father and other dads and their sons on weekends (It helped me join the team in college!), and one of the dads asked my father if I still spoke French. He said that I did, and the dad said to have me contact him: He worked at Scudder, Stevens & Clark, a well-known asset management company in Boston, marketing the products to French Canada.
Shortly after I arrived, he left the company, and the company was kind enough to find me a secretarial job in the research department. This was before computers were utilized, so I was typing handwritten or recorded company analyses, working for about eight analysts. One of the analysts, Lincoln Rathman, was a Ph.D. in history, and my parents were Ph.D.’s in history. Lincoln asked me if I wanted to learn more about investment analysis and, when I said yes, handed me a book on electrical utility accounting, figuring if I got through it and enjoyed it, I could be an analyst. I began to learn and ask questions, and he sent me to company meetings and CFA Boston events to take notes for him. After about a year, he recommended that I take the CFA exam and offered to sponsor me. He was my first mentor, and I’ve tried to emulate his eye for “hunger” and talent, and his encouragement to grow, as I’ve continued in my career.
I was surprised, at Scudder, when various women would come up to me as I was studying for the CFA exam (Level 1, June 1987) and say, “We know you’re studying; we need you to pass this for us. You need to show that a secretary can pass this exam and have the potential to move on.” I was stunned, but this was an introduction to the challenge of women in the investment business. After I passed CFA Level 1, I moved to SunLife of Canada to be an equity analyst, and then went to Africa in 1989 after finishing CFA Level 3.
If you weren’t in this industry, what would you be doing today?
I am preparing to serve on corporate boards of directors – I’ve completed certification from the National Association of Corporate Directors (NACD) – and feel that my financial expertise and knowledge of ESG, investments and operational risk will be useful there.
I will also be coaching mid-career women: I have just joined a company called reacHIRE to do this. I think there’s such a need for women to demonstrate leadership in corporate boardrooms, as well as throughout the business and non-profit worlds, and I plan to be part of helping others to identify their skills, goals and opportunities, to develop their definitive contribution and to build a “mastermind” network of partners.
What is the one tangible change you’d like to have in the industry?
I’d like to see the investment industry put the client first. I’ve worked on both the buy and the sell side, smaller banks, investment banks and large multiemployer plans, and in all cases, there are conflicts between profit and best solution, speed/efficiency and effectiveness, bureaucracy and simply too much work. I’d like to see the industry associations – CFA Institute, CAIA Association, and FINRA – take a strong stance in challenging status quo, conflicts of interest and short-term gains.
There have been many situations, in every organization, where there was a choice between what was right for the client or for a colleague, and what was expedient or most profitable. That’s a mirror of our daily life, and perhaps the investment business is no different, so it’s up to each of us to decide every day how we will live.
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