CalPERS officials are opting to invest primarily in separately managed accounts rather than direct investments and commingled funds in infrastructure, said Paul Mouchakkaa, management investment director at the $370.2 billion pension plan, in an interview Monday at its off-site meeting in Santa Rosa, Calif.
In fiscal year 2019, the California Public Employees' Retirement System, Sacramento, made commitments to two separate accounts, Mr. Mouchakkaa told the board at its meeting. One is a $1 billion commitment to GIP Strategic Alliance SMA I, a separately managed account managed by Global Infrastructure Partners, which CalPERS revealed in June. The second is a separately managed account with QIC. Mr. Mouchakkaa declined to provide details because the investment has not yet been reported officially.
While CalPERS has made direct investments in the past including an investment in Gatwick Airport in London with Global Infrastructure Partners and an investment as part of a consortium that invested in the Port of Melbourne with manager QIC, Mr. Mouchakkaa said that separately managed accounts are now preferred. The majority of CalPERS' infrastructure assets are in separately managed accounts, he said.
During the meeting, Mr. Mouchakkaa explained that when CalPERS initially started moving away from commingled fund in favor of pursuing direct investments, CalPERS found itself competing with infrastructure managers such as QIC and GIP, he said. Instead, CalPERS has determined that the best approach is to access infrastructure with separately managed accounts.
In Chief Investment Officer Ben Meng's presentation on his first 180 days, he stressed how he spent the time getting to know CEO Marcie Frost and her executive team, the investment office and the board's strategic priorities. He applauded the board's lowering of the discount rate to 7% from 7.5% and the new asset allocation, both actions occurred before Mr. Meng rejoined CalPERS as CIO in January. The board decided to lower its discount rate over a three-year period in 2016 and changed its asset allocation in 2017. Former CIO Theodore "Ted" Eliopoulos was at the helm for both of those changes.
He told the board that CalPERS took a big hit during the global financial crisis and it is still recovering from those losses. However, with the risks of another drawdown always comes with investment opportunities.
He said that CalPERS houses a full-blown investment management function within a civil-service context. Mr. Meng noted that he wants to ensure that the investment office is 100% focused on investment performance and focus on measures that will improve CalPERS' funded status.
And he said that he has been impressed how many of professionals in CalPERS' investment office class are willing to "get into one boat and row together" focusing on the entire fund rather than their own asset classes.
Mr. Meng applauded the board for making changes so that the CIO reports only to the CEO, who holds the CIO accountable.
"It allows me to focus on investment performance," Mr. Meng said.
To improve CalPERS' funded status, which is currently estimated at 70%, CalPERS staff will "have to pull together," Mr. Meng said. "It will require team work."
Board members had no questions for Mr. Meng regarding his assessment of his first 180 days.
