Jon Glidden - Delta Airlines Pension Fund Turnaround (EP.417)
Nov 18, 2024
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Jon Glidden, CIO of Delta Air Lines, expertly transformed the airline's pension fund from a staggering $13 billion deficit to full funding status. In this discussion, he unveils the innovative strategies behind this turnaround, such as portable alpha and private equity. Drawing from his naval background, Jon recounts pivotal lessons in risk management and the importance of teamwork. He also shares insights on navigating financial challenges during crises like COVID-19, emphasizing governance and collaboration in investment decisions.
Jon Glidden transformed Delta Airlines' pension fund from a 42% to a 102% funding status by integrating innovative investment strategies and addressing high return expectations.
His investment philosophy emphasizes portable alpha, private equity, and effective portfolio construction, which collectively navigate market challenges and stabilize funding.
Collaboration and communication within a robust governance structure were essential in adapting Delta's pension strategy during market fluctuations and enhancing decision-making.
Deep dives
Delta Airlines Pension Fund Transformation
Delta Airlines successfully transformed its pension fund from $7.5 billion in assets and a $13 billion underfunded liability to a fully funded status of 102%, the largest corporate pension turnaround in history. This achievement was attributed to a combination of strong investment performance and corporate contributions that offset benefit payouts. The pivotal role played by John Glidden, the Chief Investment Officer, was to integrate innovative investment strategies while tackling a high expected return target of 9%. His independent approach focused on strategies such as portable alpha, private equity, and effective portfolio construction to improve funding status.
Investment Philosophy and Forces
John Glidden's investment philosophy is driven by four main forces: portable alpha, private equity, portfolio construction, and governance. Portable alpha allows access to unconstrained market-neutral managers who can outperform borrowing costs, while private equity enables Delta to invest in under-managed assets for potential higher returns. Effective portfolio construction involves leveraging derivatives to increase expected returns, while governance ensures buy-in from stakeholders and alignment with investment objectives. This unique blend of strategies was designed to navigate challenges, enhance returns, and stabilize funding for Delta's pension plan.
Adapting to Market Fluctuations
The conversation covers challenges faced during market fluctuations, particularly during events like the COVID-19 pandemic. In March 2020, Delta's assets dropped significantly, leading to a strategic review of the portfolio, which required divesting underperforming assets and recalibrating hedging strategies. John utilized lessons learned during prior downturns to manage liquidity, focusing on maintaining the ability to meet Delta's mandatory contributions despite volatile market conditions. The emphasis was on extracting maximum value from hedges and derivatives to navigate through severe market events while maintaining core investment strategies.
Team Collaboration and Governance
Team collaboration and governance were crucial in managing Delta's pension fund effectively. John highlighted the significance of building a governance structure that embraces innovative investment strategies while ensuring stakeholders comprehend the rationale behind these decisions. Regular communication with the investment committee and fostering a culture of open dialogue allowed for rigorous examination and necessary adjustments to the investment approach. His emphasis on a collaborative team environment, where diverse insights were valued, played a vital role in successfully navigating the complexities of pension fund management.
Future Aspirations and Investment Goals
Looking ahead, John Glidden expresses confidence in his investment strategy focused on achieving sustained alpha generation through innovative methods. He aims to maintain a 30% allocation to private markets and a 40% allocation to hedge funds, focusing on deriving excess returns from these segments. John's passion for beating benchmarks drives his commitment to refining the portfolio for better risk-adjusted returns while ensuring flexibility for future corporate strategies. By leveraging the experiences gained, he seeks to adapt investment approaches that can thrive in changing market conditions and meet Delta's evolving objectives.
Jon Glidden is the CIO of Delta Air Lines, where he oversees the company’s $16 billion pension fund. Jon joined Delta in 2011, when the plan had $7.5 billion in assets, a $13 billion underfunded liability, and the highest actuarial expected rate of return (9%) of any company in the S&P 500. Despite funded status that threatened the solvency of the company thirteen years ago, investment performance combined with corporate contributions that offset plan payouts have improved Delta’s funding status from 42% to 102% today, creating the largest corporate pension turnaround in history. Our conversation discusses Jon’s independent thinking and innovative approach that led to his incredible feat. We start with his Naval and investment background and then cover the four forces that drive his investment philosophy - portable alpha, private equity, portfolio construction, and governance - and the implementation of each.
