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Pension Funds

CalPERS returns -3.9% in 2018, sets sights on hiring private equity head

CalPERS earned -3.9% in the year, 6.3% for the three years and 5.1% for the five years ended Dec. 31, CEO Marcie Frost told the board for the $348.7 billion pension fund at its meeting Tuesday.

The 10-year return ending Dec. 31 was 7.9%.

Ms. Frost did not provide details or the longer-horizon returns. The California Public Employees' Retirement System is expected to report full year-end returns in February.

In his first presentation to the board, newly named Chief Investment Officer Yu Ben Meng said that based on performance, CalPERS is currently 65% or 66% funded. By comparison, the Sacramento fund was an estimated 71% funded as of June 30.

For private equity, CalPERS officials are currently interviewing candidates and could announce a new leader for that asset class before March, Ms. Frost said in an interview. Sarah Corr has served as interim managing investment director for private equity since the April 2017 departure of Real Desrochers.

CalPERS officials are discussing a different approach to private equity investing that includes setting up two outside partnerships to make investments with the fund as the sole investor. During the meeting, Mr. Meng voiced his support for the proposal but said it was still under review. There is no timetable for adopting the new private equity program and CalPERS officials are in the process of considering candidates to run that program. Neither Ms. Frost nor Mr. Meng would say how many individuals are being considered.

CalPERS is also searching for a new chief operating officer to replace Elisabeth Bourqui, who resigned earlier this month after eight months on the job. Ms. Frost said she expects to name a replacement in three to six months.

Mr. Meng also outlined his 180-day fact-finding mission in which he expects to ascertain the board's strategic priorities including reviewing the asset liability process and to develop a common understanding of the plan's long-term commitments. In addition, Mr. Meng, said he and Ms. Frost would like to concentrate on investment activities. In that light, Mr. Meng will look to separate investment duties from non-investment duties for the staff, he said. Such non-investment activities that could be eliminated might include speaking at conferences, Ms. Frost said.

Mr. Meng said the fund is "working on too many (non-investment) things and ... not spending enough time on investment activities."

Mr. Meng said he also is planning an attribution analysis to understand the drivers of past performance, evaluate the decision-making process and develop an understanding of CalPERS' competitive advantages.

He said that although he may not be able to complete all the tasks in 180 days, he does plan to provide the board with a progress report at the July meeting.

New president, VP named

Also at Tuesday's meeting, the board unanimously elected Henry Jones board president and Theresa Taylor vice president. “As the first African-American president, I am truly honored,” Mr. Jones said after the election. He noted that CalPERS faces “challenges” including an unfunded liability, but the challenges are not insurmountable."

Both board members ran unopposed.