SACRAMENTO, Calif. CalPERS likely will seek an outsider to replace Christianna Wood at the helm of its huge global equities portfolio, sources said.
Ms. Woods replacement potentially would be groomed for the role of chief investment officer, although current CIO Russell Read has been at the fund for less than two years and is not likely to step aside anytime soon.
Recruiters said the growing complexity of the $246 billion California Public Employees Retirement System, Sacramento, will narrow the field of potential replacements for Ms. Wood, who is stepping down on Feb. 20 as senior investment officer in charge of the funds $126.7 billion global equity portfolio.
Ms. Wood is leaving CalPERS to become chief executive officer of Capital Z Asset Management, a New York-based hedge fund incubator. The firm was formed Jan. 24 when Capital Z Investment Partners completed a management buyout of its hedge fund sponsorship business in partnership with private equity manager Paine & Partners.
One recruiter, who requested anonymity, said the likely candidate for the CalPERS job will be external and have a quantitative bent, with experience running money or hiring top-notch managers and a solid understanding of both traditional and alternative asset classes.
The recruiter said one potential candidate is Margaret Towle, the former CIO of Northern Trust Global Advisors, Chicago, who left in 2005 to start her own hedge fund of funds, Alternative Investment Partners. Ms. Towle declined to comment.
Another contender could be Edgar Peters, CIO at PanAgora Asset Management Inc., Boston, a quantitative manager with $25 billion in assets under management and a subsidiary of Putnam Investments. Mr. Peters said he has not been approached about the position and declined to comment further.
My sense is youre not going to find anybody whos running anything as large as (the global equity portfolio) or as complicated as this in another public fund, said the recruiter. But another potential source for replacements is large endowments such as the $28.9 billion endowment of Harvard University, Cambridge, Mass., or the $18 billion endowment of Yale University, New Haven Conn.
Finding someone tough
Finding someone with a strong grasp of the global markets, who shows leadership skills and has a gut sense of where the markets are going will be tough, said Dave Morris, a Houston-based partner at executive recruiter Heidrick & Struggles. (Ms. Wood) had that, he said. He estimates the number of possible candidates is as small as six, but he declined to name any.
Mr. Morris, though, thinks Mr. Read wont have far to look for a replacement. Going with an insider at the fund is a good idea, said Mr. Morris.
Over the past five and a half years, Ms. Woods role evolved from dealing mainly in domestic equities with a smaller chunk of international to a complex global portfolio with a sizable hedge fund component, which Ms. Wood helped create. In June 2002, the domestic and international equities portfolio totaled $80.4 billion.
As we get larger, it gets more and more challenging to develop a benchmark-leading portfolio, said Ms. Wood in an interview. In order to have sources of alpha of this size, you really have to be on top of your game and be forward-thinking.
Ms. Woods current responsibilities include overseeing CalPERS $7.5 billion hedge fund portfolio. While its a huge portfolio that brings in strong returns, in the context of a $246 billion pension fund, its barely noticeable, she said. In the three years ended Sept. 30, the portfolio returned an annualized 12.4% vs. 8.9% for its policy index, the Merrill Lynch One-Year Treasury Note plus five percentage points, according to data on CalPERS website.
During Ms. Woods tenure at CalPERS, internal management of equities more than tripled to more than $100 billion from about $30 billion when she joined, she said. The internally managed portfolio also evolved to include domestic small-cap, emerging markets and enhanced indexing. The corporate governance unit, which she also oversaw, increased its portfolio to $7 billion from $1 billion and the pension funds corporate governance initiatives have expanded as well.
Pending selection of a permanent replacement for Ms. Wood, Eric Baggesen, senior portfolio manager, will serve as acting senior investment officer-global equity, said Clark McKinley, CalPERS spokesman. Mr. McKinley declined to provide further information about a permanent replacement.
Ms. Woods departure gives Mr. Read another opportunity to reposition his staff.
Farouki Majeed, senior investment officer for asset allocation management, joined CalPERS in June to oversee an inflation-linked portfolio, which will comprise 5% of total assets under a policy asset mix adopted by CalPERS in December. He joined from the Abu Dhabi Retirement Pensions and Benefits Fund of the United Arab Emirates, where he had served as the inaugural CIO since 2004. Before that, he had been deputy director of investments at the Ohio Public Employees Retirement System, Columbus.
Also in June, Mary Cottrill and Kurt Silberstein, both senior portfolio managers in global equity, were given new roles.
Ms. Cottrills responsibilities were pared to oversee the $2.5 billion manager development programs and the $546.8 million environmental program. She used to oversee all external equity managers, said Mr. McKinley. Mr. Silberstein now oversees all external domestic and international equity management, which totaled nearly $60 billion at Sept. 30, as well as the hedge fund portfolio.
In an e-mail to Pensions & Investments, Mr. Read wrote: Christy Woods departure is an unambiguous loss for us as we focus on how best to add value in our global equity program. However, we are blessed to have a deep bench of investment and management talent able to meet new challenges and capture new market opportunities.
Mr. Read declined to comment further about any personnel changes, as did Ms. Wood and Mr. McKinley.
In 2006, Ms. Wood was up for two CIO positions the CalPERS position Mr. Read landed and a position at the University of California regents, Oakland, which manages $72 billion in endowment and retirement assets. The UC board decided on an internal candidate, Marie Berggren.
Since then, it was rumored Ms. Wood had been looking to move on from CalPERS. No, I have had a wonderful time at CalPERS, Ms. Wood said. She added: the uniqueness of the opportunity at Capital Z, which she described as a cross between venture capital and a hedge fund, is what lured her away. She declined to say if the firm approached her or vice versa.