🔒New CT Investment Advisory Council chair Zecher makes a science out of investment risk management

In the 2011 film “Margin Call,” Zachary Quinto portrays Peter Sullivan, a risk analyst working at an investment bank as the 2008 financial crisis is about to hit.

Using information given to him by a supervisor who was being laid off that day, Sullivan fills in some missing data and determines that the bank’s huge investment in mortgage-backed securities is about to fail spectacularly.

In a meeting about his findings, a corporate executive asks about his background. Sullivan explains that he holds a “doctorate in engineering with a specialty in propulsion.”

That leads another executive to remark that Sullivan was literally “a rocket scientist,” and to ask how he ended up at the bank.

“Well, it’s all just numbers really,” Sullivan replies, “just changing what you’re adding up. And to speak freely, the money here is considerably more attractive.”

Philip Zecher isn’t Peter Sullivan, but there are some similarities.

For one, Zecher — who last month was appointed by Gov. Ned Lamont to chair the Connecticut Investment Advisory Council — has a Ph.D in nuclear physics from Michigan State University.

Despite that doctorate, he has had an extensive career in financial risk and investment management that began at Deloitte Consulting, working with clients that included banks and insurance companies.

He says, though, that it was his desire to live in New York City, and not the money, that attracted him to what became his career and, ultimately, led to Zecher becoming the chief investment officer for Michigan State University.

“It’s not actually that uncommon,” Zecher said during a recent interview with Hartford Business Journal. “There’s quite a lot of physicists who find their way to Wall Street. It’s the math.”

'Top financial talent'

The 12-member Investment Advisory Council (IAC) is responsible for assisting the Connecticut state treasurer on investment policies. It includes five volunteer members of the public who are appointed by the governor and legislative leaders.

And although it’s an unpaid position, Zecher’s chair role is significant, given Connecticut’s historical pension underfunding and underperformance.

According to a new analysis by The Pew Charitable Trusts, the cost of pension benefits in Connecticut remains higher than in most other states, the CT Mirror recently reported.

Connecticut’s spending on pensions in the 2021-22 fiscal year represented 51.5% of the state payroll, the fourth-highest rate in the nation, according to the analysis. The majority of states ranged between 6% and 34.8%, it said.

And while the state will deposit $854 million in surplus revenue from the last fiscal year into its pension fund, and has dedicated $7.7 billion in surplus funds since 2017, its unfunded pension liabilities still total nearly $40 billion, according to the state treasurer’s office. That number spikes to $90 billion when retiree healthcare benefits are included.

In joining the IAC as chair, Zecher succeeds D. Ellen Shuman, who served in that role since May 2020. Shuman — who spent more than a dozen years as director of investments for Yale University — earned high praise from Zecher for her work on the council.

“She’s great,” he said. “I think she’s done great stuff over the last few years.”

In fact, the state’s pension fund over the past two years exceeded its projections, producing returns of 8.5% in fiscal 2023, and 11.5% in the fiscal year ended June 30.

Zecher’s appointment has also received praise, including from Yale School of Management professor Jeffrey Sonnenfeld, who co-authored an eyebrow-raising study in 2023 that concluded Connecticut’s pension fund returns significantly lagged the nation’s over the prior decade.

Sonnenfeld’s study caught the attention of top Connecticut policymakers, including state Treasurer Erick Russell, who embraced some of its recommendations.

“I am enthusiastic about Governor Lamont’s appointment of new Investment Advisory Council Chair Philip Zecher,” Sonnenfeld said. “It is clear that as the remarkable turnaround of Connecticut’s pension funds continue to gain steam, we are fast becoming a partner of choice for top financial talent and top investment firms across the nation.”

'Crazy idea'

Zecher has some big shoes to fill on the council, but his background suggests he’s up to the task.

An Ohio native and 1990 graduate of Ohio University with a bachelor’s degree in physics, he went on to earn his doctorate in nuclear physics at Michigan State (MSU) in 1996.

He then followed his dream of living in New York City to Deloitte, where like the fictional Peter Sullivan, he spent two years in risk management. While there, Zecher was involved in a number of projects that utilized risk software from J.P. Morgan (well before it merged with Chase Bank), and realized that most of his clients were buying the software.

“There was this new thing in the world called the internet that everybody was talking about,” Zecher said. “And back then, people had this crazy idea that, in the future, you would not buy software, you would just rent it on the internet.”

That was the genesis for Zecher to be a co-founder and chief research officer for a new company, Investor Analytics, which provided risk analytics for hedge funds.

“We were the first internet-provided risk analysis company,” he said.

After seven years with Investor Analytics, Zecher left in 2006 to join EQA Partners, a hedge fund formed in Stamford by former co-workers, where he would become a partner and chief risk officer.

After five years at EQA, and one year as president of Periplus LLC, a financial analytics and technology consulting firm in Greenwich, Zecher returned to MSU as a senior advisor to the president for investments.

“I had joined the MSU Research Foundation board of directors, which led me to being on the university’s board of trustees and its investment committee,” he said. “The university didn’t have an investment office at the time. … They were using consultants.”

Zecher said it was “becoming clear that we really should be doing more, having our own abilities and functions,” so when MSU’s president asked, he agreed to step in as chief investment officer.

The long view

Zecher was chosen as Michigan State University’s CIO even though he was living in Stamford at the time, but says that was actually viewed as an advantage.

“What made me interesting to the president of (MSU) … was my background, and my background to this area,” he said. “I was already here, and I needed to be. It’s more valuable to be in this area than it is to be in East Lansing.”

Primarily, that was because of Stamford’s proximity to the New York financial district, but also for another reason.

“When I started, I was just working from home, but we ended up getting an office here and hiring people, and that’s really where it comes in handy,” Zecher said. “It’s just a bigger marketplace for the skill set in the New York region.”

Since becoming MSU’s CIO, Zecher has earned recognition for his management of the school’s $4.2 billion endowment, including being named one of the top 30 endowment CIOs by Trusted Insight magazine in 2020.

According to the school’s website, the endowment posted a 6.9% annual return as of June 30, 2023, and a 13.5% return over the trailing three years.

Zecher said he believes there isn’t much difference between managing endowment funds and pensions.

“We’re long-term investors,” he said. “We’re supposed to be here forever. … We can’t really market time, it doesn’t work. So, we take long-term views on what’s happening.”