Joe Dear, who was the chief investment officer of the California Public Employees’ Retirement System from 2009 until his untimely death this week, was not your average LP.
For a start, the job he took on at CalPERS was arguably one of the toughest in private equity: leading a huge, dysfunctional state pension plan through a major transitional period in the teeth of the worst downturn for generations. By way of context: in the year he took over, the system's portfolio lost about $57 billion, almost a quarter of its value; not long after came the massive pay-to-play scandal that ultimately prompted senior resignations, an expensive internal review and a major policy overhaul. As Dear told us wryly a few years later: “I came to CalPERS looking for a new professional challenge, and succeeded beyond my wildest expectations”.
Back in 2009, there were whispers that the genial Dear wasn't hard-nosed enough for a highly-politicised place like CalPERS. But the new CIO quickly proved that he wasn't afraid to make tough choices, or to ruffle a few feathers where necessary. Inevitably, not everyone agreed with all of his decisions. But there's no doubting the transformation that took place at CalPERS under his leadership: its relationship with both GPs and placement agents changed dramatically as it brought more of its investment functions in-house, while working hard to bring down costs across the board.
Now, in 2014, it's a very different-looking organisation – and its performance is back on track, with assets under management back above the $280 billion mark. Of course, some of this is down to the general market recovery. But it's hard to imagine many people having the leadership skills needed to pull off this sort of organisational change, especially at a time when (as Dear himself admitted) internal morale was at rock-bottom.
But although today's CalPERS stands as the most obvious example of Dear's lasting mark on private equity, it's by no means the only one.
Both in California and during the seven years he previously spent as CIO of the Washington State Investment Board, Dear has long been a forceful proponent of the asset class. He was one of the first public pension CIOs to make a really big allocation to private equity and has always been extremely vocal about its value to a portfolio, often talking about it as the main alpha provider at CalPERS. Many other LPs have since followed in his footsteps. And in an industry where too many senior figures hide behind a 'no comment' because they're worried about lawyers, his willingness to publicly defend the asset class – even during the Mitt Romney campaign, when most people were trying desperately to keep their head below the parapet – made a refreshing change and set a shining example to his peers.
(It also made him a great interview subject; in all the conversations we had with him over the years, he very rarely ducked a question or failed to provide a clear and well-argued opinion.)
He thought a great deal about one of the biggest issues facing limited partners (particularly the quasi-public sector organisations): how to recruit and retain top talent. Since it's hard for a group like CalPERS to compete on purely financial terms with the private sector – though he did make some important moves in boosting incentive-based pay – Dear increasingly focused its efforts on trying to find people who “find meaning in the mission of the organisation”, as he once put it.
Importantly, he was also never afraid to use his position to criticise GPs when he felt they were going beyond the pale, particularly on fees, carried interest (both of which he argued were too high) and public listings (which he felt encouraged firms to focus on maximising fee income rather than profits, to the detriment of LPs). Of course, you might argue that it's all very well doing that when you have the sort of heft CalPERS does – but there are others with similar power who have chosen not to use it, at least publicly.
All told, his years in the industry have left a lasting legacy. Hopefully both CalPERS and the LP community more broadly can find someone who's willing and able to pick up the torch.