CalPERS plans to move forward on private equity and private credit initiatives championed by its former CIO Yu "Ben" Meng as it searches for his replacement as well as that of veteran investment official Eric Baggesen, who plans to retire by the end of the year, CEO Marcie Frost said in an interview Thursday with Pensions & Investments.
Mr. Meng resigned Aug. 5 and is being investigated by a state watchdog over questions that he failed to properly disclose certain personal investments and sales of stocks and other holdings.
Ms. Frost said Mr. Baggesen, managing investment director, trust level portfolio management, informed her of his retirement plans two months ago.
Mr. Baggesen, who joined California Public Employees' Retirement System in 2004, was one of the architects of a new CalPERS plan to embed leverage into the $411.4 billion Sacramento-based pension plan's asset allocation. The board is expected to consider that proposal during its 2021 asset allocation review.
The board has already given the go-ahead for using up to 20% leverage to invest in what Mr. Meng has called "more assets and better assets" in the form of private equity and private credit, and centralizing leverage and liquidity management.
Ms. Frost said the pension fund has launched a search for Mr. Baggesen's replacement. In September, the board is expected to consider two changes to its process of recruiting the next CIO.
She said she still expects to use an executive search firm to fill the CIO position, as the pension plan did when she selected Mr. Meng, and board members will be involved in the search. She declined to provide details of the changes.
"The board takes its oversight role very seriously," Ms. Frost said.
She acknowledged that the stakes are high to successfully execute its plans, which Mr. Meng told the board was the surest route to attain CalPERS' 7% expected rate of return.
If CalPERS doesn't hit its expected return, then contributions from its employers, which include the state, counties, school districts and other public agencies already hit hard by the pandemic, will increase, Ms. Frost said.
There is also concern that with Mr. Meng's departure, the private equity community will believe that CalPERS is no longer focused on increasing private equity and private credit investments, that it will take time for CalPERS to resume commitment pacing, or that CalPERS will stall investments it has underway, Ms. Frost said.
But Mr. Meng did not work alone, she said.
"In his 18 months, Ben did extraordinary work with an extraordinary team," Ms. Frost said. "CalPERS is very committed to this. We have not taken a pause in beginning execution of the strategy."
Among the plans underway is restarting its private equity co-investment program, making co-investments in private credit, committing more capital with managers in which CalPERS officials have higher conviction and, eventually, bringing private credit management in-house.
