The largest public pension fund in the country has been without a chief investment officer for eight months. And after suspending the search until June despite identifying three finalists, it could very well be at least a year before CalPERS installs a new permanent CIO following Yu "Ben" Meng's surprise resignation in early August over some questionable personal investment holdings.
That search length in and of itself isn't necessarily unusual. The $247.7 billion New York State Common Fund, for example, waited more than a year before taking the interim tag off Anastasia Titarchuk to replace Vicki Fuller as CIO.
But CIO of the $445 billion California Public Employees' Retirement System should be the most coveted position in the public fund universe. CalPERS is often looked to as a trendsetter or anchor, with any big portfolio or holistic changes sure to have an effect on the investing tides.
CalPERS called off the current search citing difficulties presented by the pandemic as well as a lack of clarity on whether the new CIO would participate in a long-term incentive program. CEO Marcie Frost also has acknowledged the challenges posed by the political and public attention that come with the job.
The biggest problem is the threat a delay poses to CalPERS' long-term strategy, and during a pandemic no less. Facing a third CIO in as many years — one who presumably wants to steer his or her own ship — while already planning to embark on a new strategic asset allocation this year, CalPERS needs to get it right and bring on someone for the long haul. Interim CIO Dan Bienvenue said at a Jan. 21 stakeholder forum that the investment committee is expected to review capital market assumptions in June and sample portfolios in September, with a decision on a new strategic asset allocation slated for November.
Unless the new CIO is Mr. Bienvenue (and if that is the case, what is CalPERS waiting for?), the new person is going to be starting in the middle of one of the most important decision-making processes at the fund. And until a new CIO is named, Mr. Beinvenue is merely a placeholder and the pension fund is in a holding pattern during a challenging investment environment as the economy rebounds from the COVID-19 pandemic.
Yes, CalPERS has outpaced its assumed rate of return over the one-, three-, five- and 10-year periods, but it also underperformed the policy benchmark in each of those periods, the pension fund reported this year.
Ms. Frost is looking for someone who will guide CalPERS on a long-term basis, and she should. There is still time to find and pursue the right candidate, whether the long-term compensation incentives are the issue or not. But rebooting a search for what should be an attractive position does ring some alarm bells.