Ben Meng, the man selected to be the new chief investment officer of the California Public Employees’ Retirement System (CalPERS), will bring extensive investment experience to his job managing the largest US pension plan—unlike his two predecessors.
Meng, 48, holds a master’s degree in financial engineering. He has worked at Barclay’s Global Investors as a senior portfolio manager, Lehman Brothers as a risk officer, and Morgan Stanley as a fixed income trader. He joined CalPERS in 2008 as a fixed income portfolio manager. When he left in 2015, he was investment director of asset allocation. He is currently the deputy CIO of the Chinese state agency that manages China’s foreign currency reserves.
In contrast, Ted Eliopoulos, who is leaving the CalPERS CIO spot by the end of the year because of family matters, came to CalPERS as a well-connected political insider without direct investment experience. He had worked for former California Treasurer Phil Angelides from 2000-2006 as deputy treasurer and chief deputy treasurer.
Eliopoulos joined CalPERS in 2007 and was put in charge of its real estate asset class. He was promoted to CIO after the death of Joseph Dear in 2014. Dear, who had served as CalPERS CIO from 2009-2014, was also a savvy political insider. He had worked as chief of staff for former Washington state Gov. Gary Locke and ran the federal occupational health and safety administration during the tenure of President Clinton.
Dear was executive director of the Washington State Investment Board when he was picked to be CalPERS CIO. Despite his impressive resume, he had no investment experience.
This time around, sources say current CalPERS CEO Marcie Frost decided it was essential that the person chosen to be CIO have an investment background. With an investment staff of around 400 persons, it has always been an ongoing debate over whether a strong administrator or investor would be the best person in charge of the CalPERS investment office.
Frost felt it was essential to drive the investment route, particularly with the challenges the $360 billion CalPERS faces to increase its 71% funding ratio in an expected decade of low investment returns, the sources say.
J.J Jelincic, who served on the CalPERS Board for eight years until last year and was a CalPERS investment staff team member for more than 30 years, told CIO that Frost made the right choice with Meng.
“He is very smart, he has experience working with asset allocation, he has a lot of experience in fixed income, and he has broad-based financial expertise,” Jelincic said. “Ben is really focused on returns and data. He wants there to be a rational basis for what you are doing.”
Jelincic described his former colleague as a no-nonsense investor
“He is someone you would more want to have a debate with than a drink in a bar,” he said.
Jelincic said he expects some officials who are part of the CalPERS senior investment staff, including several who had applied for the CIO position, will leave with the appointment of Meng. He said Meng’s management approach contrasts sharply with that of Eliopoulos, who has a “more touchy-feely” approach” in dealing with investment staffers.
Frost did not say when Meng, a US citizen who is still working in China, would start, but it is expected he would join CalPERS in the next month or so before the departure of Eliopoulos, so the two can work side by side.
Eliopoulos has said he plans to leave CalPERS by the end of this year because of family issues.
Meng comes to CalPERS at a crucial time for the pension plan. CalPERS is lowering its yearly return expectations to 7% from 7.5% but even that may be speculative. The pension plan’s consultants and its investment staff said the retirement system can’t expect to earn more than 6.2% on an annualized basis over the next decade.
Returns below 7% would add to CalPERS’s $168 billion unfunded liability—the gap between what the system has in assets and what it would need to pay retirees their guaranteed benefits. Municipalities and school districts across California are already hard-pressed to pay their CalPERS bills. The pension system also covers state employees and the state has also been forced to pay rising contributions.
The drop in the rate of return to 7% has already meant higher bills of up to 20% or more for municipalities and school districts to pay their CalPERS bills.
CalPERS officials also hope to start by early next year a $20 billion direct investment private equity organization in efforts to expand the system’s $27 billion private equity program. Private equity has the best returns of any CalPERS asset class.
The direct investment program, which is being championed by Eliopoulos, still needs final approval by the CalPERS board. Meng’s endorsement of the program would likely be crucial in the board’s final vote on whether to go ahead.
Meng holds a master’s degree in financial engineering from the Haas School of Business at the University of California, Berkeley, and a doctorate in civil engineering from the University of California, Davis.
He graduated from Haas in 2002, in the first class for the then-new program in financial engineering, which has a key focus on quantitative investing, Linda Kreitzman, its director, told CIO. Kreitzman said Meng already had his doctorate in civil engineering when he enrolled in Haas, but she said his doctorate degree wasn’t unusual, as 20% of the class already had advanced degrees.
Kreitzman said Meng came back to Haas in 2014 to teach a class in risk management as an adjunct professor. She said the course was so well-received that Meng received a business school award, the Cheit Award for Excellence in Teaching. She said it was unusual for an adjunct professor to receive such an award.
Kreitzman described Meng as no-nonsense, like Jelincic did. She said, however, that Meng, despite his accomplishments, was down-to-earth and was always available to help his students with the risk management course.
“He has a lot of humility,” Kreitzman said of Meng.