2014 Annual Meeting Report

The Meeting

The 2014 CREF Annual Meeting was held in Charlotte, NC on Tuesday, July 15, at 1:00PM. The meeting was in the same auditorium last year, at their massive office complex north of Charlotte. They had split the room with a divider to make it smaller.

Note that unless I use quotation marks, following the name of a person, I should not be understood to be providing direct quotation of anyone. In general, I am paraphrasing what I heard.

There were enough employees dragooned into the meeting to make the room look full, but it appeared to me that only three non-employee Participants attended. I was the only one of the three who spoke. Both of the others asked for paper ballots to vote in the elections. Note that TIAA-CREF has a good idea of the number of attendees expected because you need to order an admission ticket, by leaving a voicemail, in advance of the meeting. The director of security greeted me by name (!) while I waited briefly for the magnetometer, which was set off by my belt buckle – so I was then “wanded” by a uniformed guard. Since I had a car, I left my Ipad and cellphone in the car – but you can bring in a cellphone.

Although the meeting started pretty much on time, an employee working on the setup slipped and fell off the front of the raised dais around 12:30PM. I think she was taken away for medical care, but they briefly closed the auditorium and took her out invisibly, through a rear door. (I partly mention this because I'm a theater technician, and I know that there are dangers on any “stage”.)

The four dais executives filed in, Left to Right, Howell E. Jackson, Chairman of the CREF Board, Roger W. Ferguson, Jr., CREF [and TIAA] President and CEO, Robert G. Leary, President of [TIAA-CREF] Asset Management, and Phil Rollock, Corporate Secretary. The various trustees and executives attending filed into the first two rows of the audience just behind them.

At 1:03, a voice from the PA system asked us to silence our phones, and the meeting began with a short, puffy video, “The Power of One.” It crashed, and had to be restarted with visible mouse clicks and computer-window-openings on the screen over the heads of the executives. (Again, I mention this because I've worked on shareholder meetings, and my employer would never get the job again if this happened on their watch!)

We were then welcomed by Howell E. Jackson. The candidates for Trustees of CREF, and members of other boards present were introduced. Because, for the first time, they were asked to briefly raise their hands instead of standing, it was impossible for me to determine for certain whether all the Trustees attended. There have been meetings where one or two failed to attend. He then turned the meeting over to Mr. Ferguson.

He introduced the executives in attendance, about 14, who did not stand and face us upon introduction. I mention this because I liked the opportunity to look at them in past years. I agree that it's slightly awkward to order executives to behave like schoolchildren, but it doesn't seem inappropriate in this setting. Also, there has been noticeable turnover since last year. After his speech, described in the next post, he turned to Robert (“Rob”) G. Leary, the President of TIAA Asset Management, for a report on the market environment and investment results.

When Mr. Ferguson retook the lectern, he announced the opportunity for questions and answers. As he looked around the room, there wasn't a sound or movement. He said that it looked like a short Question and Answer session. I looked behind me (because it was a mistake for me to speak first, last year) and, seeing no hands up, raised my own, to speak.

The meeting then conducted the boilerplate elections and preliminary reports of overwhelming margins for the management ballots. There was a slight error in that Mr. Ferguson didn't notice that one of the on-paper ballots hadn't been collected when he began the adjournment. The meeting was adjourned at 2:05PM.

Because the best museums in Charlotte are closed on Tuesday, I drove directly to the airport and managed to get on an earlier flight, in the fear that my own would be cancelled on account of weather. Over half of the many afternoon and evening US Air flights to the three NYC airports were cancelled for thunderstorms. My own flight flew towards Cincinnati before turning northeast. Luckily, the pilot (… told us that he) had asked for extra fuel before leaving the airport, or we wouldn't have reached La Guardia Airport.

Executive Affect and Presentations

Mr. Ferguson gave a concise and interesting presentation. He mentioned four topics he wanted to cover:

Key financial and business developments.

Values we use to guide TIAA-CREF.

Commitment to Responsible Investing.

Evolving the Election of CREF Trustees.

He emphasized the company's commitment to the next century, and beyond, not just to the immediate future. “Retirement remains at the core of what we do, and always will.” He noted the $62 Billion increase in assets in 2013, to $564 Billion, and then to $613 Billion for June 30, 2014.

The six values used to guide TIAA-CREF are:

Put the customer first

Act with integrity

Deliver with excellence

Value our people

Take personal accountability

Act as one team

The Commitment to Responsible Investing document is likely to be online under Governance. Simply for identification, not to grind an axe, it is about such topics as the company's proxy-voting policies for stocks held in our investment accounts, socially responsible screening for the Social Choice accounts, and issues brought up at many past meetings involving behavior of companies in our portfolios.

Mr. Ferguson announced that the trustees being elected today will serve for a four-year term. The company will continue to meet with participants annually. (Ironic, in view of future changes to non-annual meetings!) Voting “turnout” has declined markedly, and it is difficult to get a legal quorum in the election. The Trustee election only reached a quorum last Friday. Only 28 non-employee participants attended the meeting last year. The meetings are a big expense.

Following Mr. Ferguson, Robert G. Leary, the President of TIAA Asset Management gave a discussion of investment results, with the results ending 6/30/2014. You can read very similar results on the webpage LINK https://www.tiaa-cref.org/public/tcfpi/InvestResearch . He made a point of emphasizing the benfits of the CREF Variable Annuities. I would have liked it better if he had included a mention of why many retirees might do well to annuitize. He observed that 45 annuitants turn 100 every month, and the company feels very responsible for their financial well-being.

The crux of his recommendation was that his slides showed clearly that five different portfolios (i.e. Conservative, Moderate, Aggressive …. ) of CREF Annuities delivered superior performance over 30-year periods to the corresponding Morningstar general mutual-fund categories that roughly match the CREF VA choices. A refreshing thing about this was that it was a more direct than usual advocacy. I use that term because most of the presentations at these meetings seem reluctant to risk the (theoretical) charge of having promised particular results, or of appearing to recommend any particular investment options. He also explained that while Nuveen is often known as a Muni-Bond fund group, their, in fact, widely-diversified list of investment options will provide benefits to our Participants in the future. He emphasized a characterization of their business, but used a more neutral phrase than Nuveen's own term, “multi-boutique”. I guess that has something to do with Bloomingdales' main floor. See my footnote [3] below! (Ironica typeface)

Although I used to like Scott Evans' presentations, Mr. Leary made better contact with his audience, and presented more “from one investor to another”, instead of an “Annual Meeting Report.”

My speech and the response

Because I was the only speaker, they let me go slightly over my lousy, two-minute allocation on the visible countdown clock. But Mr. Furguson didn't fail to include, “Your time is up” in his preamble when I stopped speaking and waited for his reply. This is an approximation of my speech:

I'm fine, thank you Mr. Ferguson. Thank you for your report. I was greatly relieved when you mentioned that we're going to have Participant meetings in the years that there is no CREF Trustee election. That's contrary to what appears in our SEC filing [Dismay shown on the dais … ] Well, on Page 27 of the Proxy, it says that the next participant meeting will be in 2018.

While I would like to think of Nuveen as a cash cow we're going to milk [1] and get me more than the 10-year Treasury on my TIAA Traditional, I'm not counting on it. After all, even the Lords Of Private Equity were apparently unable to whip the inefficiencies out of the company, since they sold it for what they paid for it. Mr. John Amboian made two comments in various press releases, “We are delighted to partner with TIAA-CREF”, and “The clients of Nuveen … will benefit from TIAA-CREF's support”. Both of them set my teeth on edge.

The acquisition of a massive mutual fund company requires additional clarity in the voluntary Executive Compensation Policy document. Are the Named Executive Officers in fact, Enterprise-wide? Or is compensation at Kaspick, Nuveen, and other subsidiaries not considered in identifying either high-compensation or special incentive plans? How will current Nuveen compensation levels and practices affect existing practices at TIAA-CREF? Will the Hunter-Gatherers [2] at Nuveen “Eat What They Kill?”[3], discrediting the Enterprise-wide metrics used at TIAA and CREF?

Are the Participant-centric standards and traditions of TIAA and CREF going to filter down to our Nuveen subsidiary [4], or will their for-profit, retail culture filter up and contaminate the leading not-for-profit financial services company in the U.S.A.? The last time Nuveen reported compensation, their CEO earned about as much as ours. [5] But our CEO ran a much more complex business, with many times the volume of assets.

Most importantly, can Nuveen prosper without cannibalizing the CREF Variable Annuity Funds?

[1] This refers to Mr. Leary's investment results presentation, where he speculated on the positive prospects for our wise use of TIAA capital to acquire Nuveen. Needless to say, Mr. Leary did NOT use any phrase remotely resembling “a cash cow.”

[2] This is a snide comment about sell-side financial service culture as I see it.

[3] See [2]. This specifically, and widely-understood phrase, refers to bonuses based on (one's own) single division of a company, so that over-testosteroned traders get rewarded for profits in their specialty, even if the company as a whole shows a loss. It has some basis in reality.

[4] This word is emphasized to indicate that the Nuveen CEO works for us, not the other way round.

[5] The late Herb Allison. See the Nuveen 2007 Proxy Statement, the last year it was a public company.

Mr. Ferguson answered extremely well, even though he didn't take notes as I spoke.

He said that there would be “participant” meetings with a small “p” in the intervening years, as opposed to the statutory election of officers. He had said in his general remarks that the annual meetings were very expensive, and that it was increasingly difficult to reach a quorum for the votes. It remains to be seen whether Participant Proposals can be submitted, forced for “inclusion” in a Proxy Statement (this is an SEC technical term), and voted upon in the intervening years. I have to look at the Investment Company Act of 1940 – not a pleasant prospect.

It remains to be seen whether this complies, or needs to comply, with the 1989 Settlement agreement between CREF and the SEC, the ACE, AAUP, ICI, NEA, Stanford, four mutual fund complexes, and United University Professions. In conversation after the meeting, Mr. Ferguson appeared to suggest to me that there is a ten-year sunset in the SEC proceeding, but that would have been fifteen years ago.

Mr. Ferguson said that he wouldn't be inclined to use the term “Hunter-Gatherers” to describe Nuveen. He went on to say that TIAA-CREF had a very strong culture that would remain unaffected by outside influences. He indicated that TIAA-CREF would make sure that Nuveen's work continued to comply with the standards of TIAA-CREF. Nuveen will be operated as a separate business, roughly intact with its current form, and with its current staff.

As a supplement to Mr. Ferguson's reply, a Trustee came over to me after the adjournment to definitively describe the determination of whose compensation is described in the Executive Compensation Policy document. Although the document is presented voluntarily (i.e. it is not required to be prepared at all), the board has determined to follow the rules used by (for example) a public company in preparing their statutory filing. That is, executives of a subsidiary who have no role in the management of the reporting company cannot be “Named Executive Officers”. So it is possible that someone in Kaspick or Nuveen (or any other subsidiary) earned more than someone in the TIAA-CREF Executive Compensation Policy document.

Because I skipped over it to shorten my speech, I didn't point out that the additional $221 Billion dollars in assets managed by Nuveen may distort TIAA-CREF's “Assets Under Managment” compensation metric. (see TIAA-CREF Executive Compensation Policy, “AUM/AUA”) That is, whether everyone in the bonus pool (it's not called that …) at TIAA-CREF will get a nice payout for the sudden 30% (rough number) increase in managed money that their acumen did not, in fact, “attract”?

In chatting with an executive after the meeting, I was told that Madison Dearborn Partners (the Privaty Equity owners of Nuveen) actually bought Nuveen for a rather high price, just before the Great Recession, and had loaded it down with debt [so they could pay themselves a healthy dividend for their brilliant investment strategy, like, say, Mitt Romney's P.E. company – Tim.] In that respect, I was wrong to suggest that TIAA had overpaid for Nuveen. [He said that … ] it really is a company with good prospects for adding to TIAA's returns that permit higher payouts to Participants. Please note that we also acquired Nuveen's debts!

The subject of demand for CREF Variable Annuities didn't wasn't further discussed.