CalPERS Heads Toward Restructuring Investment Committee

Board’s governance committee gave first approval Tuesday night to a plan that reduces the size of the investment committee and the number of meetings.

Board members sitting on a key California Public Employees’ Retirement System (CalPERS) committee have approved a plan to reduce the system’s investment committee to nine members from 13 as well as to cut the number of investment committee meetings from 10 to six per year.

The plan also reduces the number of CalPERS retreat meetings at hotel resorts outside of Sacramento—CalPERS headquarters—from two a year to one.

The 6-1 governance committee approval of the plan puts it on a path for likely approved by the 13-member full board, possibly as soon as the next board meeting Sept. 18.

The committee did not act on another plan to create a code of conduct for board members after committee members disagreed on a number of provisions for two hours, including whether board members who leaked information to the press should be charged with a criminal felony. The plan was tabled for at least a month.

As far as the restructuring of the investment committee, most governance committee members agreed with a CalPERS consultant, Cari M. Dominguez, a corporate governance expert, that less investment committee members and less meetings would be more effective.

Currently, all 13 CalPERS board members serve as the 13 investment committee members. One day they act in their capacity as investment committee members, another day they are board members.  

Dominguez, who is a faculty member at the National Association of Corporate Directors, told the governance committee Tuesday night that a smaller committee setup would allow for more in-depth analysis of investment matters.

What seemed to win over governance committee members that voted in favor of the investment committee restructuring was another assertion from Dominguez. She stated that having fewer investment committee meetings would give CalPERS Chief Investment Officer Ben Meng and his staff more time to concentrate on investments and less time on preparing for the almost monthly investment committee meetings.

The subject is a particularly sensitive one for board members. The $350 billion-plus CalPERS, the largest US defined benefit plan, saw a 6.7% return in the fiscal year ending June 30, missing its 7% assumed rate of return. The pension plan is only 70% funded, and future returns under 7% would cause the pension plan’s funded status to drop ever further.

Board member Theresa Taylor told the governance committee Tuesday that it takes a week for investment staff to prepare for the investment committee monthly meetings.

“So, let’s be clear that it is very time consuming, and it does take our staff away from their job,” she said.

Board member Margaret Jones, the biggest critic of the restructuring plan, said the real problem was investment staff turnover and leaving key positions unfilled. She said that has resulted in a lack of focus on investment matters by staff, not the preparation needed for investment staffers to brief the investment committee.

“I mean of course they [are] stressed,” Brown said. “You don’t have enough staff to do the work.”

“You had no private equity [managing investment director] for two years,” she went on. “You had a stand in, but you didn’t have the real manager in there. We had the turnover of the CIO. We had a turnover in board consultants. We had a turnover in asset managers, so all these turnovers caused disruption and more work for the staff. So, it’s not the monthly meeting that’s causing the problem. It’s all this turnover.”

Taylor and Brown are not on the governance committee but sat in on Tuesday’s meeting.

The reduction in investment committee members was a compromise by governance committee members on Tuesday. The original CalPERS investment committee restructuring plan called for four investment committee meetings a year, but governance committee member Jason Perez advocated a compromise of six meetings a year.

Perez was the sole “no” vote Tuesday on the governance committee for the restructuring plan after committee members became intent on reducing the size of the committee.

The meeting Tuesday lasted four hours, the last two dealing with the code of conduct for board members.

The code of conduct initially became an issue after a CalPERS retreat meeting on July 17 because of a controversial clause under the heading “Integrity” that states “when action is taken by [the] committee or the full board, all board members will support the actions regardless of their individual vote on the policy.”

After several board members complained about the clause, a revision sent to board members on July 26 eliminated it.

The issue of what to do with board members who leak confidential closed-door board material to the press still remains a center of controversy under the code.

Governance committee members could not agree Tuesday on what penalties should be imposed on board members who violate the policy and whether making the offense a criminal felony charge was the right approach. It also was unclear who would prosecute such charges and whether they would ever hold up in court.

In a separate twist, Brown earlier in the week had demanded that CalPERS make public the results of an internal investigation examining whether board members are leaking confidential closed-door session information to the press. She also denied she is responsible for releasing the information.

CalPERS officials have not responded to Brown’s assertion.

Related Stories:

Major Restructuring of CalPERS Investment Committee Could Become a Reality

CalPERS Board Member Wants Internal Investigation into Leaks Made Public

A Proposed CalPERS Board Code of Conduct Is Still Generating Controversy

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