Educational Alpha: S3 Episode with Tom Tull, Former CIO of the Employees Retirement System of Texas

Release Date: February 26, 2025

In this compelling episode of Educational Alpha, host Bill Kelly engages in an in-depth conversation with Tom Tull, the former Chief Investment Officer of the Employees Retirement System of Texas (ERS). Tom brings a wealth of experience from his diverse career, spanning military service, corporate management, international money management, and public fund administration. The discussion delves into asset allocation strategies, the evolution of private equity, transparency in investment management, and emerging opportunities in global markets.

1. Tom Tull’s Professional Journey

Tom Tull opens up about his multifaceted career, which was significantly shaped by his military background. He details his transition from military service to the corporate sector, including roles at Cleveland Phipps Iron Co. and LTV Corp. Tom highlights his entrepreneurial spirit in founding Gulfstream Global, an international money management firm that was eventually sold to West London's bank—marking his first retirement.

Notable Quote:

"Everything is a journey and an adventure with that." [02:16]

2. Military Service and Leadership

Tom reflects on his military service in the Army, serving in Korea, Fort Bragg, and Vietnam. He emphasizes how military principles such as earning respect, teamwork, and patience have been pivotal in his approach to building and leading organizations.

Notable Quote:

"You really earn respect. You don't get respect, that's crucial." [04:58]

3. Transition to Public Fund Management

After ventures in gold mining and international markets, Tom discusses his significant role at ERS. He recounts redefining the public fund's operations by managing it more like a business, fostering a successful team, and navigating through multiple legislative sessions—a testament to his leadership and strategic vision.

Notable Quote:

"Building the team and making the team successful. And the end result is you'll succeed." [04:16]

4. Evolution of Asset Allocation and Alternative Investments

Tom provides a historical perspective on asset allocation, describing the shift from traditional 60/40 equity and fixed income portfolios to incorporating alternative investments such as hedge funds, private equity, infrastructure, and real estate. He underscores the increasing significance of these alternatives in generating alpha and diversifying portfolios.

Notable Quote:

"We went through the 60, 40 phase and then over the last several years we've gone more into the 40, 30, 30." [07:58]

5. Challenges in Private Equity’s Growth

The conversation navigates the dramatic expansion of private equity, from 24 general partners (GPs) in the early days to over 10,000 funds by 2025. Tom expresses concerns over market inefficiencies, excessive leverage, and the dilution of alpha as the asset class matures. He highlights the need for better alignment between Limited Partners (LPs) and GPs to address issues like fee transparency and investment integrity.

Notable Quote:

"Private equity has gotten so large that I think there's a lot of players in the industry that have taken advantage of the opportunity." [13:32]

6. Transparency and Alignment Between LPs and GPs

Tom and Bill delve into the critical issue of transparency in private equity. They discuss the necessity for LPs to have clear visibility into fees, expenses, and the overall alignment of interests with GPs. Tom advocates for more robust mechanisms to ensure that LPs are not burdened with hidden costs or unfavorable terms in continuation funds.

Notable Quote:

"Having a little more control, instead of every time you look at a breakdown of fees, there's more fees going to the LP than the GP." [17:19]

7. The Role of Secondary Markets

Addressing the $3 trillion in capital currently locked in private equity funds, Tom underscores the emerging importance of secondary markets in providing liquidity and efficiently reallocating capital. He envisions a future where secondary markets play a pivotal role in resolving investment backlogs and offering LPs more flexibility.

Notable Quote:

"The secondary markets are going to take on a whole new life as we go forward." [19:37]

8. Global Investment Opportunities

Tom highlights the burgeoning investment opportunities outside the United States, particularly in emerging markets and regions like the Middle East and Singapore. He points to demographic shifts, economic deregulation, and financial liberalization as drivers of growth, suggesting that global markets hold significant potential for alpha generation.

Notable Quote:

"Emerging markets are ahead of the game. That's where a lot of the growth in the world's going to be coming from." [23:47]

9. Democratization and Investor Protection

The discussion shifts to the democratization of private markets and the role of regulatory bodies like FINRA in protecting individual investors. Tom emphasizes the importance of financial literacy and the need for accessible education to empower average investors to navigate complex investment landscapes effectively.

Notable Quote:

"There's a lot of work being done to provide guidance, insight—broker checks for the individual so that they have a resource to evaluate." [30:12]

10. The Future of Investment Management

Looking ahead, both Tom and Bill contemplate the transformative impact of technological advancements such as blockchain, tokenization, and artificial intelligence on the investment management process. They agree that these innovations will redefine how assets are bought, sold, and managed, heralding a new era of efficiency and transparency.

Notable Quote:

"We're just warming up with this change and once we figure it out it's going to be game changers." [35:41]

11. Retirement and Philanthropy

In a personal reflection, Tom shares his vision for retirement, which involves splitting his time between philanthropic endeavors and continued investment activities. He underscores his passion for investing as a means of relaxation and intellectual engagement, ensuring he remains active and involved in the industry he loves.

Notable Quote:

"This is my third retirement and this time around I'm dividing it between philanthropic and investments." [34:28]

Conclusion

The episode concludes with mutual appreciation between Bill and Tom, highlighting Tom’s exemplary career and his ongoing commitment to shaping the future of asset management. Listeners are left with profound insights into the complexities of public fund management, the evolution of private equity, and the imperative for greater transparency and financial literacy in the investment community.

Key Takeaways:

• Leadership and Team Building: Tom attributes his success to strong leadership, earned respect, and effective team dynamics honed during his military service.

• Asset Allocation Evolution: The shift towards alternative investments is essential for generating alpha and diversifying portfolios in a maturing asset class landscape.

• Transparency and Regulation: Enhanced transparency and alignment between LPs and GPs are critical for sustaining trust and efficiency in private equity.

• Global Investment Opportunities: Emerging markets and international regions present significant growth opportunities driven by favorable demographics and economic policies.

• Financial Literacy: Increasing financial education and literacy is vital for empowering individual investors to make informed decisions in complex investment environments.

• Technological Innovation: Advancements in technology will fundamentally transform investment management, offering new tools for efficiency and transparency.

For more insights and discussions with industry leaders, subscribe to Educational Alpha at caia.org.