CalPERS board supportive of move to restrict investments by top staff

CalPERS board members expressed support Wednesday for a proposal to limit personal investments by future chief investment officers.

The board weighed in on a plan that would force its chief investment officers to divest from some or all of their investments or place them in a blind trust as a condition of employment. They expect to consider a specific proposal from the system’s staff in November.

The proposal follows the sudden departure last month of former Chief Investment Officer Ben Meng, who was the subject of an anonymous ethics complaint after approving a $1 billion CalPERS investment with a firm in which he held stock. The state Fair Political Practices Commission is investigating an anonymous complaint related to Meng’s investments.

Details of the proposed restriction are being worked out even as a recruitment firm searches for candidates to oversee investments at the $414 billion pension system.

Among the to-be-determined elements of the proposal are whether it will apply to investment staff beyond the chief investment officer.

“I believe this needs to be extended far more broadly to include others in the investment office, the executive leadership and all members of the Board of Administration,” said board member Lisa Middleton.

Board member Stacie Olivares raised questions around specifics. Olivares noted that if candidates were simply required to shift their assets to a blind trust, the potential for a conflict of interest would remain after hiring, since the person would know what investments they had put into the trust. The alternative, she said, would be for the manager of a blind trust to sell the investments and reinvest them.

Board members Middleton, David Miller, Rob Feckner and Theresa Taylor each expressed general support for the proposal, along with Frank Ruffino, who was representing state Treasurer Fiona Ma at Wednesday’s meeting. None expressed opposition.

Representatives from two groups representing cities and special districts in California told the board they oppose the change, saying it could hurt recruitment since few other public pension systems have such stringent requirements for personal investments by top officials.

Dillon Gibbons, a lobbyist who represents the California Special Districts Association, said the restriction could be a deterrent to finding a good candidate for the already hard-to-fill job, which pays less than similar private-sector positions and comes with intense scrutiny.

Gibbons said the restriction could have a “long-term negative impact on the organization and ultimately the fund.”

Bijan Mehryar, representing the League of California Cities, echoed Gibbons’ concerns, adding that the group maintains confidence in CalPERS’ dedication to ethical standards despite recent events.

This story was originally published September 17, 2020 at 6:00 AM.