Milton Hershey School well-being above all else, Trust CEO says

April 27. 2012 3:00AM

Jim T. Ryan

Eric Henry is a numbers guy. And a little uncomfortable with interviews and cameras since he doesn't consider himself the center of attention, he said.

In February, Eric Henry became CEO and chief investment officer of The Hershey Trust Co. photo/Amy Spangler

The Dauphin County-based Hershey Trust Co.'s newest CEO and chief investment officer said his role only is to support what the Milton

Hershey School does for its students.

"The reason we're here is the 2,000 students at the Milton Hershey School that Mr. Hershey created," Henry said. "When you think about his legacy and his vision to educate these underprivileged kids and give them a leg up, it is nothing short of a miracle."

The trust in late February hired Henry, a 20-year veteran of the investment industry, to help oversee the

$9 billion Milton Hershey School Trust, which funds the school. The Derry Township-based trust also is the largest stockholder of chocolate giant The Hershey Co. and owns Hershey Entertainment & Resorts Co., which manages Hersheypark.

Henry, 46, replaces Vince Rudisill, who retired last year after 35 years with the trust.

From 2009 to 2012, Henry was the chief investment officer for the United Auto Workers Retirees Medical Benefits Trust, a $55 billion trust for retired workers of Ford Motor Co., General Motors Co. and Chrysler Group. Prior to that, he held executive roles at Texas Municipal Retirement System and the Pennsylvania State Employees' Retirement System, among others.

The Hershey Trust has ongoing issues that affect the school and its board of directors. The state Attorney General's office is investigating its board over past land deals.

The Milton Hershey School is being sued because it did not admit a student who was HIV-positive. The school has defended its decision, saying it was a complicated issue that took into account the best interests of all students in accordance with the law.

Q: What's it like coming to the Hershey Trust from the UAW trust? There's a large gap in the size of the assets that you're dealing with.

A: The size difference isn't relevant. What's fascinating here is the complexity of the Hershey entities and the way they interact. And the way Milton Hershey's genius has been implemented to where these entities interact not only to create value in the portfolio to fund the school but to create a more vibrant community. If you do that, you can bring more people to the community and that further feeds his mission. The whole interaction of these companies and these entities to further fund his mission is the most fascinating part and it took me a while to get my hands around the different pieces and what each piece means. From a numbers standpoint, $8 billion from $55 billion is big difference, but the complexity level of the portfolios is about the same. We're using the same asset classes, just smaller pieces.

What kind of pulse do you see in the investment markets? How will that benefit the Hershey Trust?

It's a very low interest rate environment, as a starting point. That makes it very difficult to generate any kind of sustainable interest yield. It also presents fixed income investors with significant risk exposures. You look at the equity space; I see a slowly improving domestic economy. I see a slowly improving unemployment rate. I see a slowly stabilizing housing market. I worry about $4 a gallon gas. I worry about tax cuts expiring at the end of the year. The last thing we need is fiscal austerity here. We see what that's brought to Europe. In Europe you have a number of challenges with sovereign credit, with bank balance sheets and increasingly with personal balance sheets. In emerging markets, we have what is hopefully going to be a soft landing and not a hard landing with consumption slowing. At the same time, those countries are trying to transition from producer economies to consumer economies. It's a challenging investment climate that has a couple of implications. One, you need to have realistic expectations for return. But more importantly, you need to make sure of what outcome you're trying to achieve. In our case, we're trying to educate 2,000 students at the Milton Hershey School and grow our own fund.

Last year, the trust sold its investment services business to Bryn Mawr Trust. What did that sale do to the trust and are there other divestments in the future?

I can't speak to the Bryn Mawr deal. I wasn't here for that. But I can tell you we're focused on the future and making sure the portfolio is properly aligned with the school's needs. And make sure that we're going to fund that school in perpetuity. We will deal with strategic opportunities and decisions as they arise, but again our whole focus is not to outperform Harvard or Yale (trusts) or any other institutional investors. It's to fund that school and provide for the needs of 2,000 kids, and the growth and enrollment of the future. And to give back to Milton Hershey's vision.

Are there new opportunities to do that?

There are always new opportunities coming along. And there are always old opportunities repackaged as new opportunities. We are just now coming into an asset allocation study, where we'll be recalibrating the asset allocation. When you look at the work that's been done here to date, the fund has had a great run. The board and Vince Rudisill and Jan Bratton have done a great job diversifying the portfolio. The returns have been good. The school enrollment is at an all-time high. We've had a great run. But given the kinds of changes we've seen in the last five years, it makes sense to back up and recalibrate.

How long is that study going to take? Is it under way?

It's just now kicking off. It's several months that we'll be working with the investment community along the way. It's an intricate process.

The Hershey Co. recently embraced sustainable business certifications in its cocoa sourcing. Did the trust as the largest stockholder have a hand in those decisions?

No. When we do our investment planning, we go through a Monte Carlo simulation process. And in that Monte Carlo, we look at school spending needs, we look at expected returns from our portfolio and we feed in expected dividends from the stocks we own directly. But no, you'd need to talk to the Hershey Co. about that.

The trust's board was being investigated by the state Attorney General's office for prior land deals. What are your thoughts on those issues and how they affect the trust?

We know that there's an investigation ongoing. The board is fully cooperating with the Attorney General's office. When I look at it, I see a portfolio that's done well. I see a board that's worked hard and done well to generate strong returns. The endowment is north of $9 billion now, school enrollment is at an all-time high. I see happy kids on campus. Again we're here looking at the future and making sure the portfolio is properly aligned to assure the school continues to be run as it should.

With the school, there was an issue with a student who wasn't admitted because of their health status, specifically HIV. What are your thoughts on those issues? Does the trust review such decisions?

None. That's a school issue.


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