SACRAMENTO, Calif. -- Daniel M. Szente, CalPERS' new chief investment officer, believes he won the job because he has been seated on both sides of the investment management table.
"I've worked on the other side of the table, and I know the pressures managers have with style issues and performance issues," Mr. Szente said. "I have an appreciation for what money managers go through. There are pressures for individual money managers to change their stripes, but that may not be what you want from a manager that you hired to do certain things."
Mr. Szente, who was named May 25 to the CIO post effective July 1, has been executive vice president and director of research for McGlinn Capital Management Inc., Wyomissing, Pa., for two years. Before that, he managed about $1.8 billion in in-house equities for the endowment of the Howard Hughes Medical Institute, Chevy Chase, Md.
He also has public sector experience. He was assistant director of investments at the Ohio State Teachers' Retirement System, Columbus, where he had worked for 16 years.
"I've spent a lot of my career picking stocks and developing strategies," said Mr. Szente, 52. "I'm excited more with developing strategies than picking stocks. This is an exciting business. I'm going back to where the action is."
He added he will not miss the money management business.
Mr. Szente's new job at the $175 billion California Public Employees' Retirement System will pay a base salary of $260,000, and up to 75% of base pay as incentive compensation, with a target of 50%, based on fund performance and management factors.
Michael Flaherman, chairman of CalPERS' investment committee, said Mr. Szente is "a proven leader with a proven track record."
"Our longest-term challenge is one of becoming a pension fund that is likely to go into a negative cash flow," Mr. Flaherman said.
In the future, CalPERS officials will have to tackle liquidity problems that had not been a significant issue in the past, he said. "We are coming off a period of extraordinary returns over this decade, and we need to ask ourselves what the future will look like," Mr. Flaherman said.
Developing strategies for fluctuating markets will be another issue, Mr. Szente said.
"The biggest challenges will be getting my hands around a large portfolio," he said. "We've been dealing with changing markets and extreme markets. I do not think we will be able to count on that going forward."
And he has handled hard issues before. While at Ohio Teachers, Mr. Szente helped recraft the fund's investment program after the state Legislature loosened up the "legal list," the array of preferred investments that restricted the investments public pension plans in the state could use, said Herb Dyer, executive director of the Ohio fund.
He helped the now-$51 billion fund implement its international investment program and increase its exposure to domestic equities, Mr. Dyer said. The Ohio Legislature ultimately eliminated the legal list in March 1997.
"He was one of the prime architects, and we were sad when he left," Mr. Dyer said.
"My understanding is that he ratcheted up the level of sophistication and increased (Ohio Teachers') appetite for innovation," Mr. Flaherman said.
"I've spent a lot of years in the public sector, rounding out my experience in asset classes while working with Terry Wolfe (Carter F. "Terry" Wolfe, then-vice president and CIO at the Hughes' endowment) and McGlinn further rounded me out," Mr. Szente said.
At McGlinn, Mr. Szente said he has run investments for small businesses and individuals. "There's been a lot of developing of strategies," Mr. Szente said. "It's been exciting and nerve-wracking."
Pendleton James Associates, Boston, assisted in the international search at CalPERS that was prompted by the February departure of Sheryl K. Pressler, who joined Lend Lease Real Estate Investments Inc.
Also last week, Guy F. Jaquier, CalPERS' senior investment officer for real estate, was appointed executive vice president and CIO at AMB Property Corp., San Francisco, effective June 20.
He succeeds W. Blake Baird, who became president of AMB in January. CalPERS spokesman Brad Pacheco said no one has yet been named to replace Mr. Jaquier and that the system probably will conduct a search. No timetable has yet been set.