CalPERS chief’s abrupt resignation preceded by conflict of interest questions

Questions regarding conflict-of-interest disclosures preceded the abrupt resignation of CalPERS Chief Investment Officer Yu Ben Meng on Wednesday, according to the pension fund’s board members.

The California Public Employees’ Retirement System announced Meng’s immediate resignation in a late-night email after he had been on the job for less than two years.

“CalPERS has known about questions regarding Ben’s Fair Political Practices (Commission) disclosure filings,” Board President Henry Jones said in an emailed statement. “These are private personnel matters and already have been addressed according to our internal compliance protocols.”

The commission, often referred to as the FPPC, administers state laws regulating campaign finance, conflicts of interest and government ethics. CalPERS provided no further explanation as to why Meng, in whom the majority of the 13-member board has repeatedly expressed confidence, resigned after the matters had been addressed.

“We respect Ben’s decision to resign and wish him well as he focuses on his health, his family and moves on to the next chapter in his life,” Jones said in the email.

The announcement came three days after financial blogger Susan Webber published a post alleging Meng had filed incomplete and inconsistent conflict-of-interest disclosures, known as Form 700s, with the FPPC.

The forms, which CalPERS has posted online, show Meng has held investments in private equity firms and Chinese companies, two areas of investment in which his decisions have drawn scrutiny since his hiring in January 2019.

State Controller Betty Yee, a CalPERS board member, said she was disappointed by a “lapse in both judgment and adherence to standard conflict-of-interest policies” by Meng, without providing details.

Yee said she is calling for “an emergency board meeting to discuss this situation, review these policies, (CEO Marcie Frost’s) oversight and implementation of these policies, and any additional safeguards necessary to ensure this does not happen again.”

On Thursday, the board scheduled a new closed-session meeting for Aug. 17.

The pension fund, valued at $410 billion as of Wednesday, earned 4.7% on its investments for the fiscal year that ended June 30, falling short of a 7% target as the coronavirus introduced new volatility into international markets. On average, public pension funds returned just 3.2% for the same period, the Wall Street Journal reported. It was the second year in a row in which CalPERS fell short of its target.

CalPERS private equity plan

Meng pushed to expand the fund’s private equity investments to try to meet the 7% target, diverging from his predecessor’s approach to the riskier but potentially more lucrative investment class. He shook up the fund’s investment staff and made other strategic changes to the fund.

State Treasurer Fiona Ma praised Meng’s leadership, saying in a Thursday email that he had “set the portfolio on a better path toward a 7% solution with better and more assets” and “built a strong investment team.”

“I want to thank Ben for his contributions to CalPERS,” Ma said in her statement. “He started out by conducting a comprehensive review of the portfolio and built measures to protect it in a market crisis, which did happen. His preparations helped CalPERS greatly in navigating through the COVID-19 crisis.”

Meng worked at CalPERS from 2008 to 2015 before leaving to become deputy chief investment officer for China’s State Administration of Foreign Exchange. He returned when CalPERS hired him as CIO. He was California state government’s top-paid employee in 2019, with a base salary of about $646,000 plus about $850,000 in incentives. The job pays less than similar positions in the private sector.

A U.S. citizen who was born in China, Meng had to defend his time at the Chinese fund from attacks by Indiana Republican Congressman Jim Banks, who accused him of having a “cozy” relationship with Beijing and called for investigations. Banks went on Tucker Carlson’s show on Fox News to repeat the allegations. Right-wing media outlets went so far as to accuse Meng of being a Chinese spy.

Members of the Trump administration also criticized CalPERS’ China investments, which are common among U.S. public pension funds that use passive indexes. Indiana’s pension fund is among the public funds with holdings in many of the same Chinese firms Banks criticized CalPERS for investing in.

CalPERS CEO Marcie Frost defended CalPERS’ investments, saying that if the federal government wants to regulate holdings in Chinese companies it should do so through the U.S. Treasury Department, which regulates international stock-buying through its Office of Foreign Asset Control.

Questions about timing of resignation

Meng has had to defend many of his investment decisions in the public-facing role.

In January, the fund stopped paying for market crash insurance shortly before the coronavirus caused a market downturn. The decision drew a round of critical headlines. Meng published an op-ed in the Wall Street Journal outlining his broader investment strategy, which he said helped reduce the market downturn’s impacts on the fund by $11 billion. Meng told the CalPERS board he would have made the same decision had he known what was coming.

“I know that the whole atmosphere has been really rough on him and his family and I know that played into (Meng’s decision to resign), but I don’t know what exactly triggered the timing of this,” said David Miller, another CalPERS board member.

Miller said Thursday that he didn’t know all the details of Meng’s conflict-of-interest disclosures, but that the questions warrant more scrutiny from the board.

“Over the coming hours, days and weeks I’ll be really focused on what happened and why and see what role there is for us as board members for going forward,” he said. “Because it will be challenging.”

The board now must hire another chief investment officer to come to Sacramento amid the pandemic. Dan Bienvenue, deputy chief investment officer, will fill the role in the interim, according to a CalPERS news release.

Meng’s predecessor, Ted Eliopoulos, held the job for about four years before announcing he was relocating to New York.

Over the last five years, the fund has returned 6.3% on average, 8.5% over 10 years, and 5.5% for the 20-year time period. The fund manages the pensions of 2 million people, including retirees, those who work for state and local government and their beneficiaries.

This story was originally published August 6, 2020 at 7:53 AM.