Calpers May Force Its Next CIO to Unload Personal Holdings

The California Public Employees’ Retirement System may force its next chief investment officer to sell securities that could pose conflicts of interest, as the pension giant considers new rules in the wake of last month’s departure of CIO Ben Meng.

The Calpers board will for the first time publicly discuss measures addressing the issues surrounding Meng’s exit at its Sept. 14-16 meeting, according to an agenda posted Friday. Under another proposal, trustees may require that all board members be told whenever the system opens a probe into one of its top executives.

Calpers May Force Its Next CIO to Unload Personal Holdings

“There are always potential perceived conflicts” for a Calpers CIO, CEO Marcie Frost said in an interview. “Reputation is really important. It’s very difficult to negate a perception problem even if it isn’t an actual problem.”

Meng’s surprise resignation raised questions about oversight at the $400 billion pension system, the largest in the U.S. He left after approving an investment in a fund managed by Blackstone Group Inc. while holding shares of the private equity firm in his personal account, Bloomberg reported last month. The California Fair Political Practices Commission plans to investigate allegations that Meng violated rules governing disclosure of personal investments.

The sales requirement would apply to any incoming CIO, potentially mandating that the proceeds go into a blind trust. The policy may be extended to Frost’s post and others after more analysis for the board to review, she said.

Asked why Calpers didn’t have such rules already, Frost said it isn’t illegal for a CIO to hold personal investments, but “the actual problem, if there is one, comes from when those conflicts are not managed.”

She declined to comment on whether Meng had properly managed potential conflicts, citing the investigation. A compliance team in April uncovered at least one conflict-of-interest violation for Meng, Bloomberg reported.

Regarding internal investigations, Frost said that as her “best practice” she notifies the board president and the chairs of affected committees, adding that she did so in Meng’s case. But board members have said they wanted quicker notification.

At least one trustee, state Controller Betty Yee, is pursuing more changes. In a Sept. 2 letter to Board President Henry Jones, Yee asked for additional governance items to be discussed at the next meeting, including how the CIO reports to the board, to ensure “appropriate” oversight.

Those items will be discussed at the September meeting.

©2020 Bloomberg L.P.

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