CalPERS is preparing to restart its search for a new CIO that it suspended in March, after whittling down the number of finalists to three without making an offer, CEO Marcie Frost told the board Wednesday.
The $469.8 billion California Public Employees' Retirement System, Sacramento, has been without a permanent CIO since the August resignation of former CIO Yu "Ben" Meng, in the wake of regulatory filings disclosing he had invested in shares of private equity managers with which the pension fund had invested in the past.
In April, the board approved including the CIO in CalPERS' long-term incentive program, removing what Ms. Frost had said in March had been a stumbling block when CalPERS first launched the CIO search in October.
At CalPERS next virtual off-site meeting in July, Ms. Frost said the staff would ask the board to reaffirm the characteristics it wants in a CIO. Once those criteria are once again approved, board President Henry Jones is to select a committee to conduct the first round of interviews along with Ms. Frost. Final interviews will be conducted by Ms. Frost and the full board, she said.
Ms. Frost said she anticipates that she and the board will hire a new CIO by the end of 2021. The first level of interviews is expected to start in late August or early September, with interviews of finalist candidates in late September or early October, she said. Internal candidates will be considered.
In a related action, the board Wednesday changed its CEO delegation of authority for fiscal year 2022 to reflect that the board and the CEO share responsibility for hiring, evaluating and terminating the CIO. The change to the CEO delegation from prior years' delegations was to align it with CalPERS' governance policy. In November, the board decided to share in the selection, evaluation and termination of the CIO rather than continue delegating that responsibility to the CEO alone.
In other action, the board adopted metrics for the fiscal year 2022 incentive plans of its investment and some other staff as well the CEO as recommended by its new primary executive and investment compensation consultant, Global Governance Advisors. Due to a lack of time to do a full analysis, GGA did a "deep dive" on two criteria, customer service and stakeholder engagement, for both incentive plans, according to a memo Tuesday to CalPERS performance, compensation and talent management committee. The memo said GGA executives also wanted to wait to get the input of the new CIO before suggesting major changes to the incentive plans.
Current incentive plan metrics now place higher performance expectations on stakeholder engagement than on any of the other four criteria, including investment results. In fiscal year 2020, the board moved to measuring fund performance on total fund performance with no weighting on asset class or individual investment performance when considering incentive pay.
During the committee meeting, two of its members noted that under the fiscal year 2022 incentive plan a covered staff member could be granted an incentive for negative fund performance. The criteria for the staff provide for a 5% incentive payout for total fund investment performance that is 15 basis points below its benchmark.