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Biggest U.S. Public Pension Looks to China for New Investment Chief

Dawn Lim
FILE PHOTO: A view of California Public Employees' Retirement System (CalPERS) headquarters in Sacramento, California, U.S. February 14, 2017. REUTERS/Max Whittaker/File Photo

An official with China’s foreign-exchange regulator is the lead candidate to become next investment chief of the largest U.S. public pension fund, according to people familiar with the matter.

The California Public Employees’ Retirement System has offered the job to Ben Meng, deputy CIO of China’s State Administration of Foreign Exchange, one of these people said. The agency is in charge of China’s more than $3 trillion in foreign reserves. Mr. Meng previously worked for the California pension fund earlier this decade.

Mr. Meng hadn’t signed an offer letter as of Wednesday morning, this person said. Mr. Meng contacted The Journal late Wednesday to say he is a U.S. citizen working at the Chinese agency as a foreign contractor. He said he had no comment on the hiring process.

The selection of Mr. Meng would place a familiar face in charge of $360 billion in assets managed for police officers, firefighters and other public workers across the state of California. Mr. Meng spent seven years at the system, known by its abbreviation Calpers, in investment roles. He left in late 2015 and joined the Chinese government agency.

The next investment chief of Calpers faces questions on the future mix, cost and complexity of the pension fund’s portfolio.

The current chief, Ted Eliopoulos, attempted a retreat from more expensive investments as the giant retirement system reduced return expectations, cut costs and tried to better protect the pension fund from the next economic downturn. Mr. Eliopoulos said in May that he would leave his post by the end of the year.

Calpers’s next investment chief would join a fund that is debating the direction of its roughly $27 billion private-equity program. Calpers, as part of a review of that portfolio, is exploring plans to farm out billions to pools that will take stakes in private companies.

Any moves made by Calpers, which is responsible for benefits to more than 1.9 million active or retired public employees, will be watched closely in the pension world. The system is considered a bellwether for investment trends. Calpers and many other public retirement systems around the country are struggling to meet their return targets as they try to fill sizable funding gaps.

Calpers earned 8.6% in fiscal 2018 but has underperformed median returns for peers tracked by Wilshire Trust Universe Comparison Service in the five, 10 and 20 years ended June 30. Its returns have exceeded the system’s 7% target rate during the past five years but not the past 10 and 20. It has just 71% assets on hand to pay for all future benefits owed to retirees and public employees. The funded ratio for the largest 100 U.S. public pension plans was 71% as of June 30, according to Milliman.

In earlier decades, Calpers plowed into alternatives to stocks and bonds including hedge funds, private equity, timber and other commodities. Some of those bets failed to perform up to expectations after the 2008 financial crisis. Mr. Eliopoulos’s strategy was to pull out of hedge funds and try to make the portfolio less complex.

That meant undoing the work of several predecessors and limiting the number of outside managers handling Calpers’s assets. The retirement system severed ties with many private-equity, real-estate and other outside firms handling its money and explored other ways to invest in private equity without traditional pooled funds.

Board directors also agreed to a recommendation championed by Mr. Eliopoulos that the fund’s long-term investment target drop to 7% from 7.5% because of changing market conditions and a cash crunch.

Now Calpers Chief Executive Marcie Frost wants the system’s next CIO to have deep investment experience, said a person familiar with the matter. Mr. Eliopoulos hadn’t managed money on Wall Street before becoming the permanent investment chief in September 2014.

Mr. Meng had jobs at banks and investment firms before he worked for Calpers and the Chinese government. He was a bond trader at Morgan Stanley as well as a senior portfolio manager at Barclays Global Investors, a business now owned by money-management giant BlackRock Inc., according to biographies at universities where he has taught classes.

Mr. Meng joined Calpers in late 2008 as a portfolio manager for its fixed-income quantitative research group and later was promoted to help oversee the pension fund’s investment mix. One of his contributions was developing ways for Calpers to organize its investments around risks.

If he takes the job he would be the third chief investment officer named since 2009.

Write to Dawn Lim at dawn.lim@wsj.com and Heather Gillers at heather.gillers@wsj.com

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