A CalPERS committee on Wednesday directed staff to do further research on a proposal that would require its next CIO as well as board members and some staff to sell or use a blind trust for assets that could be a conflict of interest under state law.
The $417.3 billion California Public Employees' Retirement System, Sacramento, is currently searching for a new CIO following the resignation in August of Yu "Ben" Meng stemming from his ownership of shares in two private equity firms and stock in a third private equity firm's business development company. CalPERS had invested with all three firms in the past and made investments with two of the firms during Mr. Meng's tenure.
The state law is the Political Reform Act and it defines a disqualifying conflict as a decision made by a government official that would have a financial impact on the person's personal finances or other financial interests.
CalPERS hired Korn Ferry as its recruiting firm, and Korn Ferry executives are currently assembling a candidate pool, CalPERS CEO Marcie Frost told members of the fund's performance, compensation and talent management committee.
While members generally voiced support for preventing perceived or actual conflicts, several asked for more information on how the conflict determination would be made, the type of blind trust that would be used and whether instituting a requirement would hinder the CIO search.
"Given the holdings, how will you determine what would potentially go into a blind trust or what would have to be vested in terms of what you consider to be a potential conflict for the candidate to hold, and secondly, will there be impact on our recruiting efforts from putting this in place?" asked board member David Miller. " I certainly support putting something in place."
During the meeting, Theresa Taylor moved to require the next CIO to sell or place in a blind trust securities giving rise to a conflict of interest but withdrew the motion when other committee members said that staff should do more research.
"I feel like this is a knee-jerk reaction to oversight failures," said committee member Margaret Brown. "I think we're way ahead because we haven't done the research here."
She said the committee needs more time and information on what other pension funds in the U.S. and Canada do, whether the proposal will solve the problem and how the proposal will affect recruiting.
Committee member Stacie Olivares said the committee needs expert guidance on the issue. "There's … a big difference between disposal of an asset and disposal of an asset and transfer of those funds to a blind trust," she said. "And it depends how the blind trust is structured as well."
