The California Public Employees’ Retirement System has an ambitious goal to hire its next chief investment officer early in 2024. According to industry experts, the right person to fill the role might not be easy to find.
The new investment chief — CalPERS’s fourth since 2018 — will have to contend with not only managing a $454.8 billion portfolio through a downturn, but also with managing board and constituent relationships.
This task has proved challenging for recent CIOs, including Ben Meng, who held the role for a year and a half before Nicole Musicco took the helm. Musicco announced in September that she was stepping down to spend more time with her family.
“The new CIO has to appreciate the fact that they are in a very high-profile position,” said Jim Scheinberg, founder at North Pier Search Consulting. “That kind of fishbowl environment puts really everything they do in constant scrutiny from perspectives that are beyond traditional return-seeking, objective-accomplishing aspects.”
On October 10, CalPERS CEO Marcie Frost revealed on Bloomberg TV that her team hopes to find Musicco’s replacement as early as January 2024. That plan is optimistic: It took the pension fund a year and a half to hire Musicco. But it has been done before. CalPERS hired Meng just four months after Ted Eliopoulos departed in 2018.
A spokesperson for the fund told Institutional Investor that CalPERS plans to announce an executive recruiter by next week. When the fund does, it will post the job to its website. The best case scenario, he added, is that the fund hires a new CIO after the first of next year.
According to both Scheinberg and recruiter Charles Skorina, the next CIO will have to be able to manage the politics that come along with running the investment team at one of the country’s largest pension funds.
The CalPERS board is made up of 13 members — six elected, three appointed by state officials, and four ex officio members, including the state treasurer and controller. Each member has a four-year term, but these terms are rolling. In other words, new board members will join in 2024, 2025, and 2026.
This structure, according to Skorina, presents challenges for CIOs. While they may have been hand-selected by a board two years ago, the truth is that new representatives may disagree with the board’s past decisions.
“My point is that if you don’t find a politician who understands the system there, they won’t last,” Skorina said. “Maybe they’ll make it two years, maybe into their second term. But not much longer than that.”
Skorina pointed to Joe Dear as an example of someone who thrived in the CIO seat at CalPERS. He joined in 2009 from the Washington State Investment Board, and spent five years at the helm. (Dear died in 2014, before stepping down from the pension.)
“He knew how to deal with a bureaucracy and a variety of positions and sharp knives, and he did well,” Skorina said. “He was U.S.-class smooth politician, which is the only way you’re going to survive in that job. It has nothing to do with investing.”
Frost appeared to hint at this need in her interview with Bloomberg. “There’s a type of personality that actually appreciates being in the public eye, frankly, and having $460 billion, they get to have a viewpoint,” she told the news organization. “So that’s the type of person that we are looking for. Again, there may not be a lot of them, but CalPERS has a draw.”
Beyond finding a politically deft person to take over leading investments at the fund, CalPERS may want to evaluate how it plans to run the portfolio — with turnover in mind.
“It’s a high-profile position and you’ve had reasonable turnover in the past, you should probably prepare for reasonable turnover in the future,” Scheinberg said. “You may want to be more systematized in your allocation, rather than looking at heavy-handed CIO leadership because they might not be there long enough to implement their full set of themes.”
