Mr. Meng said he plans to take a hard look at CalPERS' asset allocation process, and sources expect him to view asset allocation through a quantitative analysis, tactical strategy lens.
CalPERS needs to improve its investment capabilities by including tactical strategies, investing in less efficient markets and scaling up private equity, Mr. Meng said.
He also sees alternative investments as a better investment bet than public markets to push CalPERS toward meeting its 7% expected rate of return. He declined to say how much of the portfolio he would invest in alternative investments. Some 11.4% of CalPERS' assets was invested in real assets and 8.1% in private equity as of Oct. 31.
Investing in stocks and bonds "may not be the best way to spend our risk budget," Mr. Meng said. Instead, public market investments should be the beta or core of the portfolio.
"We're focusing on getting the tracking error down," he said.
Investing again in hedge funds, a strategy CalPERS exited in 2014, is not on the table right now, he said.
"Looking back, that was the right decision to make," Mr. Meng said. "Going forward, I have not seen much change" in the factors that gave rise to CalPERS' decision.
He did not say whether he is leaning toward a model in which public equities and fixed income would be used to fund alternative investments. Funding for alternatives would depend on the portfolio at the time investment opportunities arise, he said.
CalPERS staff members are in the process of consolidating portfolio characteristics of the private equity program with global equity, according to Eric Baggesen, managing investment director, asset allocation and risk management, and a November report by private equity consultant Meketa Investment Group.
Under that approach, CalPERS would have a single asset segment focused on growth with a 58% target allocation, made up of CalPERS' current 8% private equity target allocation and 50% global equity allocation, Meketa's Nov. 13 report states.
Indeed, echoing earlier statements by other CalPERS executives, Mr. Meng noted private equity is one of the only asset classes that could provide the pension plan excess returns.
At the same time, he indicated CalPERS' new private equity investment plan could be tweaked.
The model has four parts: two evergreen investment strategies that would be run by separate partnerships set up by — but not owned — by CalPERS; a portfolio of commingled funds; and a fund-of-funds type portfolio that invests in emerging managers.
"I applaud you and staff for exploring the private equity model," he said during the January meeting. "The markets do not stand still, competitors do not stand still."
But more separately managed accounts could be added to the mix.
"We continue to explore different models," Mr. Meng said. "We don't have a specific time table … We don't have a specific outcome either."
Even so, CalPERS officials are in the midst of interviewing a number of candidates to run the two outside private equity partnerships. Mr. Meng declined to provide the number of executives being interviewed.
A schedule provided to CalPERS' board at a December meeting showed investment staff would be coming to the board with outside partnership terms for the private equity model by the Feb. 19 investment committee meeting.