SACRAMENTO, Calif. - CalPERS board members plan to fast-track the selection of a new chief investment officer, with Mark Anson, the senior investment officer, global equity, considered to be the odds-on favorite for the job.
If picked, Mr. Anson would succeed Daniel M. Szente, who shocked the board of the $144 billion California Public Employees' Retirement System, Sacramento, with his resignation just 16 months into the job. Mr. Szente left to become chief investment officer for McMorgan & Co., a San Francisco-based money manager that targets the Taft-Hartley market.
Board members and staff are working behind the scenes to see if they can develop a consensus about adopting a streamlined process or if they will have to conduct a full-fledged search. A shortened process would greatly favor selection of an internal candidate, who already would be known to the board.
Other potential internal candidates, sources said, could include Rick Hayes, who oversees the fund's alternative investments area, or other senior CalPERS staff. But most sources said Mr. Anson is the only serious contender for the job.
CalPERS President William Crist, however, said no decision on a candidate or a search process has been made. "There just simply hasn't been any decision, and all of the discussions we had - and we had a lot of them - were done in executive session." He declined to discuss matters addressed in executive session, but acknowledged the CIO search would be addressed at the board's Dec. 19 meeting.
A highly respected investment professional who has a master's in finance from Columbia University's graduate business school, a law degree from Northwestern University School of Law and a fistful of professional certifications, Mr. Anson oversees the fund's public equity investments, including its highly publicized move into hedge funds.
Mr. Anson was said to be one of the top two candidates for the CIO slot last year, but he lost out to Mr. Szente, who had 16 years' experience at the State Teachers Retirement System of Ohio, Columbus, including a tenure as assistant director of investments.
In contrast, prior to joining CalPERS, Mr. Anson was a portfolio manager at OppenheimerFunds Inc., New York, and had spent many years in academia but had no public pension fund experience. Political acumen has become as important to the position as investment insight, as CalPERS' board has been fraught by shifting political factions and tensions between the board and staff. Dealing with the board would be a test for Mr. Anson, observers said.
"He's not a political guy, but a smart guy," said one source, who requested anonymity.
Mr. Anson has written two books on derivatives; numerous articles on hedge funds, risk management and portfolio management; and a forthcoming book on alternative investments that will be published by John Wiley & Sons Inc. in January.
Mr. Anson declined to comment on Mr. Szente's departure or who might take his place.
The controller's lawsuit
Mr. Szente's impending departure from CalPERS, effective Nov. 30, took board members by surprise. In a release, Mr. Szente blamed the specter of a lawsuit brought by California Controller Kathleen Connell, as well as citing the opportunity afforded by McMorgan.
Ms. Connell's lawsuit threatens to roll back salary increases for 10 senior portfolio managers at the fund - not including Mr. Szente, who earned a combined $432,757 in salary and incentive compensation last year.
CalPERS officials approved 11% raises to the managers last year, boosting their base salary ranges to between $88,000 and $105,000. But the state Department of Personnel Administration, headed by CalPERS board member Marty Morgenstein, said the salary hikes exceeded state employee salary guidelines and refused to issue a pay letter.
In response, CalPERS issued its own pay letter to Ms. Connell, who as controller cuts state employee checks. Ms. Connell refused to honor the request, and CalPERS instead set up its own payroll system for the 10 portfolio managers.
Ms. Connell sued, claiming CalPERS had violated state law. CalPERS officials responded that Proposition 162, a constitutional amendment that protects the pension fund from political interference, gives them freedom to set higher pay rates. A California state judge recently upheld Ms. Connell's position, ruling CalPERS is not exempt from other state laws and that the fund should have challenged the controller and the personnel agency in court (Pensions & Investments, Oct. 29).
While CalPERS officials are portraying the state court ruling as purely procedural, Richard Chivaro, chief counsel for Ms. Connell, disagreed. "I think it's a big blow to CalPERS, and their position that 162 has essentially made them autonomous and a fourth branch of government in California," he said.
In an interview, Mr. Szente said he fears the court ruling will change the environment at CalPERS. "I really came there (CalPERS) for the growth potential, the new and different stuff. Really, at this point in my career, I just don't have time" for the distraction of the lawsuit, said Mr. Szente, who is 54. He added: "This was about my people; this wasn't about me."
Mr. Szente also said dealing with the board wasn't a problem, but the internal bureaucracy was cumbersome. "There are just so many hoops to jump through at CalPERS, it's just phenomenal," he explained. But insiders also believe the general level of politicking at CalPERS probably was more than Mr. Szente had bargained for.
In a press release, Mr. Szente and other CalPERS officials warned the legal cloud could spur portfolio managers to leave. "Even though CalPERS is appealing the trial court ruling, I am seriously concerned that some of the most specialized investment managers won't want to remain in limbo for 12 to 36 months until the matter is finally decided," Mr. Szente said.
Mr. Crist added in the release that the lawsuit could force CalPERS to "adopt less sophisticated programs with the ultimate loss of returns;" while Michael Flaherman, investment committee chairman, said CalPERS might have to return to hiring more external money managers at a greater cost to the system.
But Mr. Chivaro said the controller is being wrongly blamed, and that CalPERS officials are attempting to use Mr. Szente's resignation to build their case at the appellate level.
Mr. Chivaro said it's up to the governor's office to decide how big pay raises should be, while the controller just cuts the check.
What's more, he said, Mr. Szente is leaving for a higher-paying job. "He's going to leave ... for more money. I don't see how that helps his employees one bit," Mr. Chivaro said.
Added one CalPERS insider: "He just took the money and ran."
Mr. Szente responded he will be making essentially the same amount of money he made in his job prior to joining CalPERS, when he was executive vice president and director of research for McGlinn Capital Management Inc., Wyomissing, Pa. "I didn't come there (CalPERS) for the money," he said. He declined to reveal what his new salary will be.
At McMorgan, Mr. Szente will fill a void the firm has been seeking to fill for 18 months. Mel Petersen, who had retired as CIO in 1994, was brought back to the helm in an acting role after two other CIOs took ill and eventually died.
The company has $25.4 billion in assets under management, mostly for Taft-Hartley funds, and was acquired by New York Life Investment Management Holdings LLC in June. While performance for stocks and bonds generally has been above benchmark, the firm's stock portfolios were clobbered in 1999 when it eschewed the technology sector.
McMorgan now is looking to offer other products from New York Life managers to its existing client base, said Paul Morton, chief operations officer and son of one of the founders. The firm also mightconsider adding new investment styles, he added.