Capital Allocators: How the World’s Elite Money Managers Lead and Invest by Ted Seides

Author:Ted Seides [Seides, Ted]
Language: eng
Format: epub
ISBN: 9780857198877
Google: y6QWEAAAQBAJ
Published: 2021-03-23T06:55:56.237000+00:00

Roles and responsibilities

Ben Meng became CIO at CalPERS in January 2019. The $400 billion California pension fund began operations in 1932 to fund and pay pensions to state workers. Over the ensuing 88 years, it has grown to be the largest defined benefit fund in the U.S. and one of the largest pension funds in the world. As CIO, Ben sat at the table at the very top of the global food chain of capital.

Eighteen months later, he resigned. His departure seemed to involve pressure raining down about his potential ties to China, personal ownership of $70,000 of stock in Blackstone Group, and his decision to remove a market hedge in early 2020.33

You might assume that a nearly century-old institution with such an important mission would have clear rules in place about political connections, conflicts-of-interest, and short-term investment decisions. But in response to Meng’s departure, the CalPERS Board “revealed cracks in philosophy of what power to give staff and what to keep.”34 For what it’s worth, Meng wasn’t alone. The pension fund’s COO and CFO had exited the revolving door of leadership in the last two years as well.

Meng’s counterpart in Southern California at CalSTRS, Chris Ailman, says the key with governance is a clear definition of roles and responsibilities. It sounds so simple. Figure out who is doing what and execute. The board and the CIO together decide who is accountable for each step of the investment process and decide who has the authority to make investment decisions.

And yet it is anything but simple.

New CIOs step into their role with a legacy structure that may have contributed to the opening they are brought in to fill. Meredith Jenkins became the first CIO of Trinity Wall Street following the Church’s sale of billions of dollars of real estate in 2016. She anticipated walking into the seat with a pile of cash to invest over time, but soon found out that the Church had hired an interim consultant who had rapidly deployed most of the money. It took Meredith a few years to build the portfolio into the design she had in mind before signing on.

When Ellen Ellison got recruited to be CIO of University of Illinois-Urbana, she took over from a small team in the foundation’s offices who had outsourced the investments. She had to deconstruct the ship while it was still in motion. Ellen created a list of 15 agenda items and started with the most difficult one. For six months, she worked on governance and did not touch the portfolio. This included shrinking the size of the investment committee in half, writing new policies for investments, short-term funding, conflict of interests, voting bylaws, and eventually, asset allocation. Only after that groundwork was in place did she turn to reconstructing the investment team and portfolio.

Once a CIO has their bearings, they will find that their authority to make investments can range from full responsibility to none. For Matt Whineray at the New Zealand Super Fund, ownership over all investment decisions is the most fundamental belief.

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