Side Letter: What we know about Ben Meng’s departure from CalPERS

We're all about CalPERS today. The world's eighth biggest private equity investor is dealing with the hasty departure of CIO Ben Meng. As details trickle out about the reasons why Meng left, the plan to push the giant pension further into private assets is being overshadowed. Here's today's brief, for our valued subscribers only. 

She said it

“The biggest concern that we have with first – and even second – time managers is making sure that they have either hired a back-office team, have a shared back office or have outsourced the back office. Even if there are only three people in a team, we want one of those people to be a CFO, who may work on deals but is also overseeing the admin side of things.”

Claire Kendrick, head of alternative investments at Mill Creek Capital Advisors, talks sister publication Buyouts through due diligence on emerging managers.

Just happened

CalPERS: the story so far

Last week Ben Meng, CIO of California Public Employees’ Retirement System, resigned after less than two years in the job. Here’s what we know:

  • This was sudden. CalPERS issued a press release announcing the resignation after 10pm Pacific Time on Wednesday. According to financial blog Naked Capitalism, Meng was seen in the office in routine internal meetings that same day, suggesting “his departure was not voluntary”;
  • Meng told the Financial Times (paywall) that his “health has been deteriorating for six months” and that his sudden departure allowed for a “quicker and cleaner transition” to his deputy, Dan Bienvenue, who takes over on an interim basis;
  • His resignation follows Naked Capitalism revealing he owned stocks in publicly traded PE firms Ares Management, Carlyle Group and Blackstone. Since Meng became CIO, CalPERS has committed $1 billion to Blackstone Core Equity Partners II. CalPERS has yet to provide records of Meng recusing himself from this investment decision;
  • Naked Capitalism alleges Meng filed “demonstrably false financial disclosure documents” regarding these conflicts;
  • The California Fair Political Practices Commission said it had received a complaint about Meng’s financial disclosures on Tuesday, per a report from CIO;
  • In a statement to sister title Buyouts, California state controller Betty Yee expressed disappointment about Meng’s “lapse in both judgment and adherence to standard conflict-of-interest policies”. She is calling for an emergency board meeting “to discuss this situation, review these policies, the CEO’s [Marcie Frost’s] oversight and implementation of these policies, and any additional safeguards necessary to ensure this does not happen again”. However, it should be noted Yee did not confirm the conflict of interest was the Blackstone commitment;
  • CalPERS’ board president Henry Jones told Buyouts the pension “has known about questions” regarding Meng’s disclosures, but called them “private personnel matters” that have “already been addressed according to our internal compliance protocols”;
  • Meng had recently announced a long-term plan to introduce more leverage and push further into private equity and private debt. Whether this plan will go ahead without him is a major question mark;
  • The 2009 CalPERS “pay-to-play” scandal (in which then-CEO Federico Buenrostro accepted more than $200,000 in bribes in return for encouraging certain investment decisions in favour of former board member and placement agent Alfred Villalobos) is still recent history. Anything that casts doubt on the probity of making fund commitments to PE managers will echo that scandal, and as such calls into question the pension’s plans to move further into private markets investing.

Essentials

What you’re reading

Aside from reading about Ben Meng’s departure from CalPERS, here’s the content you spent most time with last week on PEI:

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Today’s letter was prepared by Toby Mitchenall with Isobel Markham and Justin Mitchell.

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