Actuaries Advancing Beyond: Rene Martel, PIMCO

By Wei Zou Ang

Aspiring actuarial students often find themselves in a particular dilemma when choosing their first careers out of college: Insurance or Consulting? However one cannot help but ask if there exists opportunities that lie outside the traditional actuarial career paths. Are actuaries only limited to the traditional fields of insurance and consulting for their entire careers?

Unbeknownst to most, actuaries are being increasingly sought after by non–traditional employers for their industry specific expertise and prior actuarial work experiences. This series of interviews will help shed light on non–traditional careers that actuaries have ventured into and how real actuaries have leveraged their unique skill sets to move beyond traditional actuarial career fields.

Rene Martel, FSA, is a vice–president with PIMCO, a world–class asset–manager based out of Newport Beach, Calif. After graduating from Laval University with an actuarial science degree, Mr. Martel spent five years with Mercer Retirement and Mercer Investment Consulting prior to joining PIMCO. Our dialogue below describes his unique career path and current work at PIMCO.

Wei: Can you please describe PIMCO and what your responsibilities at PIMCO are right now?

Rene: PIMCO is one of the world's largest fixed income managers, with a presence in every major global bond market. The firm was founded in 1971 with a focus on fixed income but has since expanded its management capabilities to other asset classes. As for myself, I am a product manager in the liability driven investments (LDI) group. Most of our LDI clients are pension funds or insurance companies with long term liabilities. Our objective is to help clients understand the risks embedded in those liabilities and create investment strategies to either closely match those liabilities or achieve excess returns while minimizing mismatches and risks. For example, we determine what sectors of the bond or derivative markets we should focus on or what should be the maturity structure of the portfolio in order to control risk relative to liabilities. We then set guidelines for our portfolio managers who in turn trade these investment products based on those guidelines and objectives.

Wei: What is a normal day on the job like for you?

Rene: We spend a good amount of time analyzing our client's liabilities, understanding their return and risk control objectives, and identifying what financial instruments can be used to implement a strategy that will meet these objectives. In addition to conducting quantitative analysis, we are also developing new investment products as market conditions and clients' objectives evolve and create the need for new solutions. We are also involved in servicing existing clients by helping them to optimize or revisit their strategies as their specific circumstances change. We are also working closely with portfolio managers to ensure proper implementation of the strategies. For example, if they tell us that a certain strategy cannot be implemented given the current market conditions, we will then have to tweak our approach to reflect that. Finally, I spend some time reading different publications and newspapers and attending conferences to stay on top of what is happening in both the financial markets as well as the pension industry.

Wei: What was your career path and how did it eventually lead to your current position at PIMCO?

Rene: I graduated with an actuarial science degree from Laval University in 2000 and joined Mercer. Then I spent my first three years at Mercer as an actuarial analyst in the retirement practice performing actuarial valuations and working on plan design matters. Following that, I spent two more years at Mercer in the investment consulting practice where I was responsible for conducting asset liability modeling and recommending risk management strategies for pension plan sponsors. There is some similarity between my investment consulting experience and my current responsibilities at PIMCO. The difference is that at Mercer Investment Consulting I was more focused on the broad asset allocation decisions, while at PIMCO I spend more time implementing strategies and designing products that will meet the goals set forth by clients and consultants. Along the way, I also obtained my FSA designation and completed the CFA program.

Wei: What are your biggest challenges on the job?

Rene: I think one of the biggest challenges is consolidating academic theory with real world practices. While some strategies make perfect sense on paper, they do not always work as well within the capital markets. For example, a group of securities might be a great match for a given liability stream, but they might not be available in a size that is large enough to offer the amount of liquidity that is required for an efficient implementation. Under those circumstances, we will have to find appropriate substitutes, understand and quantify the basis risks and try to minimize their impact. In some cases this is no easy task. Finding the best way to communicate complex concepts can also be a challenge. You can have the best solution in the world, but if you cannot get people to understand it and appreciate it it's not worth much.

Wei: How has an actuarial background helped you with your job?

Rene: First the rigor that you need to demonstrate to complete the examination process has helped me prepare adequately to work in this business. Your clients, managers or colleagues will put value only on top quality advice, work or products. And the only way you can achieve those expectations is by demonstrating the same rigor and diligence at work. Another benefit of the actuarial training is to provide a deep understanding of risk, or what I call an "actuarial intuition." You learn that you have to consider all possible outcomes and their respective impact�you cannot just rely on average or median scenarios. The severity of the low probability events is often what comes back to haunt people.

On a more practical note, the pension background that I acquired both at Mercer and through the actuarial examinations has been very valuable. A good proportion of our LDI clients are pension funds and one very important aspect of my job is to understand their pension liabilities before I can structure investment strategies that will help control risks relative to those liabilities.

Wei: What do you like best about your job?

Rene: One of the most interesting aspects is that pension asset–liability management, at least from an implementation standpoint, is a relatively new area. Although the theory behind it has existed and been taught by a number of ALM proponents for a long time, it is only in the last few years that plan sponsors started to implement it on a significant scale. Therefore, there are many things that must still be built or created in this space. And when you are closely involved in that kind of paradigm shift, you get the rewarding feeling that you are contributing to changing the way things are done. Another interesting element of my job is the link with financial markets. I enjoy being in a position to witness the constant transformation that is happening as well as understand its impact.

Wei: What attracted you towards an actuarial education in the first place?

Rene: Whether they work in insurance, pension consulting, benefits consulting or any other field actuaries in the end are responsible for managing risks. That notion of managing something that is unknown and uncertain was very intriguing to me. I also had an interest for numbers and statistics and therefore I liked mathematics, but it was also important for me to be involved with practical applications in the real world and I felt an actuarial career could provide that.

Wei: How can college graduates follow your career path?

Rene: I would say don't be afraid to explore non traditional opportunities. I think actuaries should be confident about the value they can bring to firms outside traditional fields. Our credentials are very well accepted and recognized outside the usual industries. We can bring a different point of view to the table and this is highly appreciated. However, do not underestimate the importance of having a strong actuarial background even if you're going to work in a business that is a little removed from the actuarial community. I say this because you must be self sufficient enough to find the answers on your own whenever you face a problem or challenge. In more traditional fields you generally work with many other actuaries and you can often get guidance from senior actuaries. At non traditional firms, you are more likely to work with a smaller number of actuaries, and can even be the only one sometimes. Therefore, you have to make sure that your background is strong enough to function with limited support.

Wei: Where do you see the actuarial profession heading in the future?

Rene: I think risk management in general will be a key area for future years to come and most professions involved in managing risks will do well. Although risk management has always been an important function, recent events, especially in the financial markets, have shown us that financial institutions, corporations and public entities need to improve their risk management practices and invest in it. Therefore actuaries are uniquely positioned to do well in that environment. Not only do we have a strong risk management background, but in addition because our penetration in the risk management functions of many of these institutions has been limited so far, we will be seen as bringing fresh ideas that are needed to take risk management to the next level.

Wei: If you had one piece of advice to give actuarial students, what would it be?

Rene: Don't be afraid to go off the beaten path. At your first jobs, there will be some processes and practices that have been in place for many years and there might be good reasons why things are done this way. But that being said, innovation can only happen if people are challenging those practices from time to time. New hires are an especially great source of innovative ideas as they come in without the biases that some of their more experienced colleagues may have formed over time. By doing this you will not only improve the business of your firm, but you will also be identified as a driven and innovative individual and this will create great career opportunities.