Editor's Note: Today's Star-Advertiser reports that Hawaii Employees Retirement System fired chief investment officer Vijoy Chattergy on Monday February 11.  The Star-Adv does not mention that the firing comes three days after Chattergy was interviewed by the Wall Street Journal about ERS losses from trading VIX puts.  The WSJ interview was not posted until Feb 14.  See below:

Hawaii ERS Gambled on Market Calm—Then Everything Changed

Wall Street Journal Feb 14, 2018 (excerpts)

 …In the past, pension funds, endowments and family offices pursued relatively safe investments. After interest rates collapsed on the heels of the financial crisis, they ran into challenges paying pensioners and filling university budgets, and added riskier bets on hedge funds and venture capital in the hopes of winning better returns.

More recently, some of these investors also made big, unpublicized wagers seeking to benefit from what had been an unusually long period of low volatility, according to pension-fund consultants and others who deal with these institutions. The strategies, often involving the writing of complicated options contracts, were for years a source of easy money. Markets hadn’t been so calm since the 1950s.

Among those making such bets were Harvard University’s endowment, the Employees’ Retirement System of the State of Hawaii and the Illinois State Universities Retirement System.

Yet volatility has now returned to markets, with a vengeance. When the Dow Jones Industrial Average lost more than 2,400 points in a week, intraday market swings also surged. The Cboe Volatility Index, or VIX, a measure of expected swings in the S&P 500, closed at its highest level last week since August 2015, recording its biggest one-day jump ever on Feb. 5 as it surged to 37.32 from 17.31 the prior day.

The $16.9 billion Hawaii fund in 2016 began earning money selling “put” options—essentially a bet that markets would stay calm or rise. When markets fall, Hawaii is on the hook to pay out.

“We’ve taken some losses that you’d expect with these sharp moves,” said Vijoy Chattergy, the fund’s chief investment officer, on Feb. 8. He also said “they’re within expectations.”….

The put options it began selling in 2016 give holders the right, but not the obligation, to sell stocks at a certain level. When markets are calm, Hawaii receives a check each month from whoever is buying a put option. If markets fall, whoever bought the put can collect.

The fund’s Mr. Chattergy, while worried about an extended downturn, says Hawaii has taken steps to mitigate losses. He said Hawaii will continue to sell these put contracts, convinced the income will offset market turbulence. “We’re continuing to trade the strategy.”…

read … Hawaii Gambled on Market Calm—Then Everything Changed

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State pension fund trustees fire chief investment officer

Star-Adv  Feb 15, 2018 (excerpt)

…The trustees of the $16.9 billion public workers pension fund have fired their chief investment officer, instructing him on Monday (Feb 12)  to leave the offices of the Employees’ Retirement System and not return, according to sources familiar with the action.

Vijoy “Paul” Chattergy joined the ERS as an investment specialist in 2011, and became its fourth chief investment officer late the following year. His salary was $240,000 annually.

Officials familiar with the situation said some of the eight ERS trustees cited problems with Chattergy’s “management style” as the grounds for his termination.

Chattergy did not respond to requests for comment Wednesday, and ERS Executive Director Thomas Williams refused to discuss the matter.

“I’m not at liberty to discuss confidential personnel matters,” Williams said. He added that “things are going exceedingly well here at the ERS.”….

read … No Reason Reported

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Star-Adv Feb 13, 2018: State pension fund loses 6% in stock sell-off 

OI: Naked Put Selling Burns Hawaii Pension