Calpers needs a new CIO for $450B fund, but it’s no easy job

Incumbent resigns after 18 months and the search is on for a successor.

The largest public pension fund in the U.S. is looking hire a new chief investment officer by early next year following the surprise resignation of its previous leader after less than 18 months on the job.

The California Public Employees’ Retirement System is aiming to fill the CIO role by sometime in January, and several potential candidates have already expressed interest, Chief Executive Marcie Frost said in an interview at Bloomberg’s San Francisco office. The $451 billion fund is retaining a headhunter firm and Frost said she is searching for an executive with private asset experience as Calpers plans an aggressive expansion into private credit.

Filling Calpers’s top investment job has been notoriously challenging. The CIO faces scrutiny from a 13-member governing board, transparency requirements imposed on public employees, and a salary that can be less than half that of peers in the private sector. It took 18 months to name the pension’s most recent CIO, Nicole Musicco, following the abrupt resignation of Ben Meng in August 2020.

Then there’s pressure of meeting the pension plan’s 6.8% annual return target. If it falls short, municipalities across California could be forced make up the difference and even cut services to meet obligations. The fund earned 5.8% last fiscal year, a sharp turnaround after a 6.1% loss in the prior year that was its worst showing in more than a decade.

“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,” Frost said in the interview Tuesday. “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.”

Frost’s comment come as the pension looks to reduce its stock portfolio and expand further into private credit. In the coming months, Calpers will consider increasing its private credit exposure to 9% from 5% of the fund’s total portfolio — a jump of around $18 billion.

Under Musicco and Meng, Calpers was already expanding its private equity as it faced pressure to meet its return target. The pension in the last fiscal year increased its private equity bet by $25 billion to $60 billion, and they may increase further, Frost said.

Calpers could increase private equity weight in the portfolio from 13% to 18% if the investment team “felt like they had the appropriate deal flow,” Frost said. “I think having a CIO who has a background in private assets will continue to be part of the credentialing of the next CIO.”

Still, steering the fund toward private assets will require more staffing and may face challenges. Musicco, who stepped down last month, citing a desire to focus on her family, wanted Calpers to pursue ownership stakes in sports teams and explored a deal with the Sacramento Kings professional basketball team. The strategy resulted in some internal push-back from staff.

Private equity returns were negative in the last fiscal year as high interests rates end years of easy money for deal-makers. The pension governing board is weighted toward major labor unions, which are critical of private equity deals that strip companies for profits and put workers’ jobs at risk.

“I don’t know that there are any other seats on a U.S. public company or pension plan that has the same transparency and visibility,” said Frost. “Some people are wired for it — and some people don’t know if they are wired for it. Or they think they are wired for it until they actually sit in the seat.”