CalPERS Won’t Hire a New CIO Until Next Year

The pension fund’s prior CIO, Ben Meng, resigned last August, but still no replacement is in sight. A new search, after the first one failed, is only just beginning.

The pension fund’s prior CIO, Ben Meng, resigned a year ago, but still no replacement is in sight. A new search, after the first one failed, is only just beginning.

It’s been nearly a year since CalPERS Chief Investment Officer Ben Meng resigned last August 5, but the largest US pension plan is still months away from hiring a new leader. Another eight months is, in fact, the prediction of Dore Partnership, the new consulting firm charged with finding Meng’s replacement.

The new search is getting under way after CalPERS’ first consulting firm failed to produce a candidate suitable to the agency’s board. The firm ended its efforts in March of this year after a six-month search.

Now the focus is on hiring a new CIO in 2022—three months into the year. The first round of candidates should be interviewed by a pension plan search subcommittee in September and a selection for the CIO made by early to mid-December, said Crawford Torell, a principal at Dore Partnership, in a meeting with the CalPERS board on July 14.

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But, she said, the person hired likely will be the subject of a noncompete agreement in his or her current job. “We only put early to mid-March [for] the candidate joining CalPERS, as we know from experience that there are noncompetition periods that can range from one to six months.”

Another issue may also complicate the search. Some members of the CalPERS board are insisting on a diverse candidate to lead the $470 billion pension organization—preferring that the search look beyond the white males that dominate the investment industry.

Meng left CalPERS amid charges that he oversaw the approval of an approximate $1 billion pension plan investment in a Blackstone Group private equity fund while holding stock in Blackstone. Meng cited health reasons for his departure.

The California Fair Political Practices Commission continues to look into whether Meng violated state ethics rules. Spokesman Jay Wierenga said any violation of California’s Political Reform Act can lead to fines of up to $5,000 per violation.

The continuing investigation hasn’t stopped Meng from a getting a new job, however. Franklin Templeton Investments announced on July 15 that it had hired him to lead its investment efforts as executive vice president and chairman of Asia Pacific.

Franklin said in a press release that in Meng’s newly created role, he will help drive Franklin Templeton’s Asia Pacific and global growth strategy in partnership with the firm’s existing leadership. He will report to President and CEO Jenny Johnson and serve on the firm’s executive committee.

Meng has strong experience working in Asian environments. Before joining CalPERS as CIO in January 2019, he served as deputy chief investment officer for China’s State Administration of Foreign Exchange (SAFE). The organization manages over $3 trillion in the country’s foreign currency reserves including investments in real estate, infrastructure, private equity and private credit.

CalPERS CEO Marcie Frost has said that the first search to replace Meng resulted in three finalists but no offers were made. There were also other issues. “Potential candidates expressed to us that they were reluctant to move their families during the pandemic,” she said.

Another factor that may have discouraged candidates: Frost said the board had not finalized a compensation package for the CIO. The package is now in place that would allow the officer to earn more than $2 million a year compensation for staying five years and meeting investment targets.

But a third issue—first disclosed publicly at the CalPERS meeting on July 14—is disagreement among board members over who should be eligible to hold the CIO job.

“It is incumbent on us to ensure we have diversity at the highest level of investments,” said board member Stacie Olivares. “We have seen time and again: When there is diversity, there is outperformance.”

But board member Margaret Brown cautioned that the goal of finding a diverse candidate to be CIO may be elusive. “It’s very clear this is going to be challenging,” she said.

According to Brown, pushing for female candidates or those from historically underrepresented groups will make the pool even smaller. “The most important thing we are looking for is qualified candidates. This might mean not hitting on the diversity piece,” she said. “If that’s what we are searching for, no wonder we came up empty, first time around.”

Frost noted at the July meeting that diversity is not an absolute criteria for the next CEO. She said the first search firm was told that there should be “no filtering criteria” saying an individual had to have a diverse background to be considered for the CIO role.

“But the instruction was to cast a wide net—bring in diverse candidates for consideration. But it was not to select a diverse candidate,” she said. “It was to select the most qualified candidate, but we wanted to consider a broad range of experiences and skill sets and diversity.”

Frost said she didn’t expect those instructions would change for the second search unless the board determined they should. It’s unclear whether any of the three finalists for the CIO job in the first search were diverse.

Charles Dore, chief executive and founder of Dore Partnership, promised to the board a comprehensive search. He said his company would “lead a systematic A – Z search,” and “if the market has diversity to offer, the firm will find topnotch diverse candidates for the CIO position.”

But the exact factors that make a diverse candidate still may have to be clarified.

Board member Olivares asked whether “diverse candidate” would include LGBTQ. Dore responded that, at this point, race and ethnicity were to be used.

https://www.ai-cio.com/news/new-calpers-cio-see-2-4-million-payout/

https://www.ai-cio.com/news/california-opens-investigation-former-calpers-cio-meng/

Tags: CalPERs; CIO; Ben Meng; Marcie Frost; Charles Dore

The economy has staged a remarkable comeback—and with it the stock market—from the dark days of early 2020, when the pandemic shut down much commercial activity. But aside from the expanding Delta variant, Wall Street’s storied wall of worry nowadays is steepened by labor shortages. While there are many explanations for that situation, one stands out: People want more pay to start a new job.

It’s at the heart of a vexing puzzle: Job openings (9.2 million) are almost equal to the number of unemployed workers (9.5 million), yet employer complaints are mounting that they can’t fill vacant positions. Should this mismatch persist, then implications aren’t good for the economy or the stock market.

Exactly why COVID-19’s economic reverberations have spawned this attitude is as yet unclear. But one big clue might be in the New York Federal Reserve’s Survey of Consumer Expectations. This poll asks workers what level of pay they’d need to take a new job. In one year’s time, the answer had shot up 15.6%, to an average $71,403. Over that same period, the compensation costs rose just 2.9%, according the US Bureau of Labor Statistics.

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This desired pay, known in economist-speak as the reservation wage, climbed the most among the lower-paid folks—the young, women, those without college degrees. For whatever reason, lockdowns and the like have changed worker psychology.

So managements should shell out more, right? “There’s a way that employers can resolve that problem, which is to pay higher wages to make it more appealing for workers to return to work,” said Stephanie Aaronson, a senior fellow at the Brookings Institution, during a podcast from the think tank.

Pay is going up, although nothing like what the respondents to the New York Fed’s survey want. In June, average hourly earnings rose 0.3% month over month and 3.6% year over year, both about in line with Wall Street expectations. Some employers are boosting pay, such as Amazon’s recent decision to hike minimum wages to $15. Not every company can afford to pump up payroll costs, however.

But enough employers are trying, although it remains to be seen whether that’s sufficient to appeal to the New York Fed respondents. Darrell Cronk, CIO of Wells Fargo Wealth & Investment Management, believes wage boosts will meet demand. “It’s starting its build. I don’t think we’ve seen the high-water mark yet in wage inflation pressure.”

Some 4.1% of companies posting on hiring site Indeed in June were granting hiring incentives, which was twice more than the rate of a year ago. Many, especially truck drivers and health-care workers, were offered cash bonuses ranging from $100 to $30,000. Restaurant jobs got bonuses of $100 to $2,500.

From 1979 to 2019, wages for the lowest-paid tenth of the nation’s workforce increased 3.3% when adjusted for inflation, but pay for the top 5% rocketed 63.2%, by the estimate of the Economic Policy Institute, a liberal think tank. Automation, offshoring, and the century’s spate of recessions—in 2001, 2007 through 2009, and 2020—were the culprits. By one study, 53 million workers, some 44% of the total, were low wage before the pandemic. On average, they earned $10.22 an hour.