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ASSET OWNERS

New CalPERS CIO is a well-connected insider

Theodore Eliopoulos will push for continued improvement in performance.

Updated with correction

CalPERS' new chief investment officer, Theodore “Ted” Eliopoulos, is a politically savvy insider who built his reputation not from investment expertise but from knowing the power corridors of Sacramento and allying himself with a powerful real estate developer.

The board of the $298 billion California Public Employees' Retirement System, Sacramento, chose Mr. Eliopoulos on Sept. 17 to lead the 400-person investment office over outside candidates with more investment experience.

In picking Mr. Eliopoulos, board members chose someone familiar, someone they had already picked to serve as interim CIO of the nation's largest defined benefit plan in February, following the illness and then death of CIO Joseph Dear.

Other finalists included Dennis Johnson, senior vice president and chief market strategist for Comerica Asset Management, and Seema Hingorani, former interim CIO of the $150 billion New York City Retirement Systems, sources said, adding both have vast investment experience. Mr. Johnson had been a senior portfolio manager for corporate governance at CalPERS; he left in 2008.

One person interested in the job was former CalPERS CIO Mark Anson, who left in 2006, one source said. The source said Mr. Anson was not seriously considered because of opposition from CalPERS board President Rob Feckner.

Mr. Anson runs the family office for the Bass family and is managing partner and chief of the investment committee at Oak Hill Investment Management in Menlo Park, Calif., a private equity manager. The firm is backed by the Bass family.

Appointed positions

Mr. Eliopoulos, 50, a lawyer, worked for former California Treasurer Phil Angelides from 2002 to 2006 as deputy treasurer and then chief deputy treasurer. These are appointed positions, but ones that couldn't be obtained without strong political connections, sources said.

The two men also were president of the same firm, AKT Development, but at different times. AKT is owned by Sacramento land baron Angelo Tsakopoulos, a major political fundraiser for California Democrats. Mr. Tsakopoulos helped bankroll Mr. Angelides' unsuccessful gubernatorial campaign to unseat Arnold Schwarzenegger in 2006.

When Mr. Eliopoulos joined CalPERS in early 2007 as senior investment officer for real estate, he inherited a highly leveraged portfolio, a third of which was invested in non-core, opportunistic real estate.

A plan approved in 2007 under the direction of Mr. Eliopoulos allowed opportunistic investment to rise to as much as 40% and core to drop to as low as 20%.

The non-core exposure caused a major problem: The value of CalPERS' real estate portfolio reached a high of $23.7 billion on March 31, 2007, before plunging to $13.7 billion as of June 30, 2009, CalPERS data show. (The real estate portfolio was valued at $25.9 billion as of June 30.)

After the collapse, Mr. Eliopoulos announced major modifications, putting more of an emphasis on core real estate.

Its real estate investments returned 13.95% for the fiscal year ended June 30, 121 basis points above its custom benchmark. For three years, the portfolio returned an annualized 13.91%, 202 basis points above the benchmark.

But for the five years ended June 30, CalPERS' real estate portfolio returned a meager 0.49%, 937 basis points below the custom benchmark.

As interim CIO, Mr. Eliopoulos has acted aggressively in at least one area. Shortly after he got the title, he created a committee to examine whether the pension fund's hedge fund program should continue. The committee's decision to end the program, endorsed by the CalPERS investment committee, was announced at the Sept. 17 board meeting.

In an interview on Sept. 25, Mr. Eliopoulos said the program was too costly and too complicated with only $4 billion invested.

“I see my role to drive for continued improvement in performance, continued improvement in building up our risk management and risk governance processes within the investment program and to continue on the path of driving better cost effectiveness (by reducing fees of external managers) within the investment portfolio,” he said.

In a statement, Mr. Feckner said, “Ted distinguished himself during the selection progress as the best candidate for the position.”

Investment committee Chairman Henry Jones said in quote sent by CalPERS' public affairs office: “This was a global search and there is no doubt among those of us that were part of the investment hiring process that Ted was the best choice.”

Board member disagrees

One board member who didn't vote on the new CIO is J.J. Jelincic. He is on paid leave from his job as a CalPERS investment officer while he serves on the board, and was recused from the vote.

Mr. Jelincic said he worked under Mr. Eliopoulos from 2007 to 2012, “and he doesn't have the temperament or the management skills” to be CIO, Mr. Jelincic said.

He said Mr. Eliopoulos relied too much on the advice of consultants, made the wrong decision to increase CalPERS' exposure to riskier non-core real estate assets before the financial crisis, and played favorites with employees.

Mr. Eliopoulos declined to respond directly to Mr. Jelinicic's comments, but took credit for more recent improved performance. “I think my record for restructuring our real estate portfolio and guiding it to the position that it is in today speaks for itself,” he said. “I'm proud of the accomplishment, and I will leave it at that.”

There will almost certainly be one key casualty among the top ranks of CalPERS' investment staff. Egidio G. “Ed” Robertiello, senior portfolio manager of absolute-return strategies, is planning to leave, now that the hedge fund program he oversaw was axed, sources said. Mr. Robertiello did not return two phone calls. n

This article originally appeared in the September 29, 2014 print issue as, "New CalPERS CIO is a well-connected insider".