Pension Funds

CalPERS board approves substantial pay increase for next CIO

CalPERS' staff also to refine private equity investment model for board vote in fall

The CalPERS board on Wednesday approved substantially increasing the compensation of the next chief investment officer who will replace Theodore "Ted" Eliopoulos when he leaves at the end of 2018.

The board approved a motion by the performance, compensation and talent management committee to pay the new CIO a salary range of $424,500 to $707,500 per year in addition to incentive pay of up to 150% of total salary. This would amount to a maximum of $1.8 million annually. Currently, the CIO's salary range is $408,000 to $612,000, with an incentive of up to 75% of salary for a maximum of $1.1 million a year. At the same time, the board delegated to the CEO the authority to select an incentive target for the CIO. The current incentive target is 50% of salary.

Two board members voted against the proposal: Margaret Brown and Richard Gillihan.

"I want to say again for the record that we're making adjustments to salary ranges when we have zero evidence that we're going to have any issues recruiting qualified individuals for this position," Mr. Gillihan said at Tuesday's performance, compensation and talent management committee meeting.

The committee deferred until August proposals on an incentive plan for the CEO.

Separately, CalPERS' staff plans to return to the board in the fall for a vote on a revised version of a proposed private equity investment model, CEO Marcie Frost told the board at Wednesday's meeting.

The new investment model proposal includes creating an outside corporation to make direct investments in private equity. In addition to the outside corporation, the model would include an expanded emerging manager investment program and a partnership program in which the $356.5 billion California Public Employees' Retirement System, Sacramento, would hire a strategic partner to make co-investments, Ms. Frost said.

"We will also refine this proposal as additional information comes in with a go, no-go decision expected later this fall," she said.

After the board meeting ended, CalPERS sent out a written "For the Record" statement by Ms. Frost outlining her views on why CalPERS officials are considering the new approach, which echoed statements made by Mr. Eliopoulos at Monday's investment committee meeting. She noted that private equity is CalPERS' highest-returning asset class and that the pension plan is 71% funded. CalPERS' most recent investment performance and risk report showed that its $27 billion private equity portfolio outperformed its benchmark with a 10.7% annualized internal rate of return for the 20 years ended April 30 but that the portfolio has underperformed its benchmark for all other time periods, including one year at 16.6% IRR; five years, 12.1% IRR; and 10 years, 8.7% IRR.

Ms. Frost did not address concerns raised Tuesday by former board member J.J. Jelincic at the performance, compensation and talent management committee meeting.

During the public comment period, Mr. Jelincic noted "there is a lot of dry powder out there." He added, "If you want more private equity (investments), you would have to pay up," which he said he wouldn't recommend because it would drive down returns.