Story of the Year: CalPERS investment chief stuns with resignation

Ben Meng stepped down from his post in August, only weeks after announcing a long-term plan to introduce more leverage and push further into private equity and private debt.

Ben Meng stepped down as chief investment officer of California Public Employees’ Retirement System in August, a sudden departure after less than two years in the role.

Some four months later, it remains unclear as to why exactly Meng resigned. He cited the need to focus on health and family and to “move on to the next chapter in my life”, according to a statement. His resignation came after state ethics investigators launched a formal investigation into whether he violated conflict of interest laws when he oversaw investments in three of the same private equity firms he was personally invested in.

Meng’s short tenure was beset by both internal and external pressures. The $421 pension giant has scarcely two-thirds of the money it needs to pay all retirees their pensions, with the funded status at an estimated 70.8 percent, according to preliminary fiscal year 2019-20 returns ending 30 June.

Meanwhile, the planned four pillars strategy – a major restructuring and expansion of its private equity programme approved by its investment committee in March last year – has yet to take shape. Initiatives under the strategy include backing emerging managers, making more co-investments, as well as backing late-stage venture capital and making longer-term investments in core economy companies.

Weeks before his departure, Meng unveiled a new strategy to leverage up to 20 percent of CalPERS’ assets over the next few years and to use the money to invest in private equity and private debt in the hopes of making up the pension’s funding gap. This plan also got pushback from stakeholders.

Meng was bullish on the asset class and had been vocal about CalPERS needing “more exposure to PE”. He had set off to pursue an aggressive investment policy for private equity. Whether this plan will go ahead without him is a major question mark.

Speaking at the pension system’s IC meeting in September, head of private equity Greg Ruiz noted the pension’s $24.6 billion PE portfolio was not “near its potential” mainly due to a lack of consistent capital deployment and lack of strategic consistency.

“Historically, we’ve been highly inconsistent with our capital deployment,” he said. “And the truth is, that has hurt us.”

The search is on for Meng’s successor. This time the pension is looking for a candidate who can make a minimum commitment of five years, chief executive Marcie Frost said in a board meeting in October.

The anticipated timeline for recruitment involves second round interviews and finalist candidate selection by mid-December, with the finalist candidate to be introduced to the board of administration in early January 2021, according to CalPERS’ meeting materials in December.

– With additional reporting by Toby Mitchenall and Justin Mitchell.