CalPERS had whittled the number of finalists for its next CIO to three, but announced Friday that it has suspended the search without making an offer and will pick it back up in June.
Officials at the $439.5 billion pension fund plan to revisit the criteria for the job as well as the search process in April, CEO Marcie Frost said in an interview Friday.
The search was triggered by the August resignation of former CIO Yu “Ben” Meng, in the wake of disclosure filings showing he had invested in shares of private equity managers with which the California Public Employees’ Retirement System, Sacramento, had invested in the past.
Ms. Frost said a 10-member subcommittee that included herself had interviewed eight candidates and trimmed the list to three finalists. Originally, the search process, which began in October, was scheduled to recommend a candidate by January or February.
The subcommittee last met March 15 and decided to halt the search, in part, due to the global pandemic and a lack of clarity on whether the new CIO would participate in a long-term incentive program, Ms. Frost said.
Although the subcommittee had a pool of qualified candidates to consider it did not end up making an offer to any of them, she said.
“The ongoing challenge we often have in recruiting is because of the complex nature of our portfolio,’’ she said. “And it’s a very public environment ... That is a challenge in recruiting. There is not anything we can do with that.”
The three finalists are eligible to reapply, a spokesman said.
Currently, the CIO does not participate in CalPERS’ long-term incentive program. A board committee in April is scheduled to consider whether to change that program and add the CIO to it. Candidates asked about the long-term incentive plan during interviews, Ms. Frost said.
The board’s former compensation consultant Grant Thornton recommended late last year that the CIO participate in the long-term incentive program, but a board committee wanted more information, a committee meeting transcript shows. CalPERS has since replaced Grant Thornton with Global Governance Advisors, which signed its new contract in December.
Ms. Frost said the board decided to wait on making a decision about the long-term incentive program until it heard its new consultant’s opinion and wanted more information about what other institutions are doing regarding long-term incentives.
In addition to the challenge of recruiting an executive with experience investing a large and complex portfolio in a public environment, the CIO needs to be able to retain the confidence of all the stakeholders, including the beneficiaries, she said.
Ms. Frost said she and the board expect to relaunch the search in June.
In the meantime, Ms. Frost said that the full board at its April 19-20 meeting will also be asked to validate the current criteria in place used to assess candidates, which includes being an experienced and respected institutional investment professional with knowledge of managing investments in-house and through external managers.
The individual’s expertise in investing growth assets is going to be “a very important consideration” due to the challenge of attaining CalPERS’ 7% expected rate of return, Ms. Frost said. CalPERS reported a net return of 12.4% for 2020.
“There’s not a large group of candidates that would meet all the criteria,” she said.
Ms. Frost added that internal candidates could also be considered for the CIO role.
Also at the April meeting, the board is expected to decide whether it will keep the same search process. The current process involved two panels of three board members, which came together in a joint subcommittee to vet potential candidates. The board is expected to decide whether the search should be conducted by its seven-member performance, compensation and talent management committee.
