SACRAMENTO, Calif. - As the new chief investment officer of the California Public Employees' Retirement System, Sheryl Pressler must guide the $80 billion fund into increased use of private equity transactions to offset the lowered expectation of public market returns.
The new CIO, who comes to the fund from McDonnell Douglas Corp., St. Louis, is taking the helm of the nation's second largest pension fund in an era when investment returns are not expected to keep pace with the boom years of the 1980s.
Ms. Pressler also could make greater use of derivatives and other synthetic securities.
"The biggest question between the chief investment officer and the investment committee is how do we get (investment) returns" similar to what the system earned in the 1980s, said Charles Valdes, chairman of the investment committee and a trustee. "The biggest issue is: Where are we going to make the money with interest rates so low and the market at a high that continues to reach new highs? But everyone is concerned that there will be (market) corrections ahead."
After a nine-month search, trustees picked Ms. Pressler, director of retirement funds management at McDonnell Douglas.
Mr. Valdes said he expects Ms. Pressler to have some comments to make on asset allocation, long considered to be responsible for the lion's share of returns. Asset allocation is particularly important for the California system because it is so large it can virtually represent the market in each asset class.
Corporate pension funds, said Mr. Valdes, typically have a greater exposure to equity investments than public funds. He expects Ms. Pressler might suggest the retirement system increase its exposure to equities. However, Mr. Valdes added the fund has done "extremely well" with its current asset allocation policy and has more in international investments and alternative investments than most public pension funds.
As of Sept. 30, the fund had about 45% of its assets in stocks, about average for large public funds, according to Pensions & Investments' annual survey of the 1,000 largest funds.
Ms. Pressler was chosen over three remaining competitors, all males, to replace retiring DeWitt Bowman.
Ms. Pressler, who will join the fund April 1, was the only remaining candidate from the corporate world.
Sunny Oberoi, formerly director of investments at Pacific Gas & Electric Co., San Francisco, had been the fifth finalist for the job, according to a source. But he dropped from the race, preferring to take a job with Capital International Inc., San Francisco. Mr. Oberoi declined to comment.
As director of retirement funds management at McDonnell Douglas for the last three years, and a McDonnell Douglas employee since 1981, Ms. Pressler has stayed out of the public spotlight.
One source described Ms. Pressler as "very smart, and very, very cautious in her comments."
"She knows the right answer. She's very perceptive about what she should say," said another.
Richard Pink, a senior partner at TCW Realty Advisors Inc., Los Angeles, a money management firm, said of Ms. Pressler, "She is very smart, very sharp. That's what people say about her."
Ms. Pressler, through her secretary at McDonnell Douglas, declined to comment.
Some trustees liked Ms. Pressler's enthusiasm and ability, said Mr. Valdes. He said he was impressed with her description of how she reaches "an accommodation" with the investment committee at McDonnell Douglas.
However, a public system like California's has members with sharply different opinions and an accommodation might be more difficult to reach. Gov. Pete Wilson has several appointees on the system's board who sit beside trustee and State Treasurer Kathleen Brown, now in a fierce race for Mr. Wilson's job.
Ms. Pressler appears to be sharply different from the last female chief investment officer for the California system, Greta Marshall, who was attacked privately by some trustees for repeated public exposure in newspapers, magazines and television. She also had strong opinions about what investment policy was needed at the jumbo fund.
Ms. Pressler is taking over as chief investment officer of a pension fund that has 10 times the assets of McDonnell Douglas' plans and is, through corporate governance and other activities, continually in the public eye.
Ms. Pressler's predecessor, Mr. Bowman who retired last month after serving five years, came from the public sector.
"I hope she (Ms. Pressler) is responsive to the board and not dragged around by the staff, not completely oriented by the staff," said Jake Petrosino, a system trustee, referring to the differences between public and corporate bureaucracy.
Possibly ensuring her responsiveness to the board, Ms. Pressler, who will receive $175,000 a year base pay and incentives, will work under a different arrangement from Mr. Bowman. Mr. Bowman had a three-year contract, while Ms. Pressler will serve at the "pleasure of the board," said Patrick Hill, assistant public affairs officer for the California Employees' system.
One of the first tasks Ms. Pressler will face in her new job is dealing with money management marketers.
"I expect she is going to be inundated with business people who swamp her like a cloud of locusts - taking her to lunch and dinner. She will be lucky if she can turn around without being bumped into. The marketing people are going to be making a full-court press," said Mr. Petrosino.
No doubt Ms. Pressler is familiar with money manager sales people, but the California fund's assets are a much bigger draw than those of McDonnell Douglas. Just one account from the California fund can equal as much $800 million.
For money managers, getting to know Ms. Pressler's views could be critical because the system's trustees sometimes almost leave a hiring decision up to its staff once a short list has been picked.
One money manager who made a pitch to the trustees for an account and won was shocked to find out Mr. Bowman and a few staff members had done the selection from a short list, and got an almost perfunctory approval from the trustees.
Corporate governance also might be a complicated issue for Ms. Pressler. Instead of being with a corporation that the California fund might review, Ms. Pressler will be an executive with a fund that leads the way in reviewing corporate performance.
Mr. Valdes doesn't anticipate the corporate governance issue as insurmountable for Ms. Pressler, although he said he questioned her about the subject. According to Mr. Valdes, Ms. Pressler said she would have no problem with a corporate governance policy that is interested in improving a corporation's financial bottom line and ability to compete.
In the first few months at least, Ms. Pressler will get some help from Mr. Bowman, who will stay for the transition.
Mr. Valdes said he doesn't know how Ms. Pressler will differ in leadership from Mr. Bowman. Almost no personal data has been released by the system about Ms. Pressler, other than she earned an MBA from Washington University, St. Louis, and a bachelor of arts degree from Webster University, also in St. Louis.
Ellen LeMonde-Holman, a communications specialist at McDonnell Douglas, said she had no information on a replacement for Ms. Pressler.