Ben Meng, Chief Investment Officer (CIO) of CalPERS, left the $400 billion pension fund rather unexpectedly last week after a blogger discovered alleged improprieties in his disclosure of conflicts of interest between the pension fund and his private stakeholdings.
Many people, including two-million California members of the pension fund, are understandably upset by the lack of controls enacted, especially since it took Ben quite a while to be released from the grip of China where he worked previously, and plenty of time was available to look him over thoroughly during that timeframe.
In the many comments that ensued following Ben’s departure, much emphasis was put on the supposedly corrupt leadership at the fund. I do not share that observation in my private interactions with CalPERS board members, CFO, staff, and a previous CIO.
All I see, and I am privy to, is a stiflingly bureaucratic organization performing a nervous musical-chair game of asset management stuck in a dead-end street of below seven percent return expectations. Measured by vintage, the “gold” standard in asset management.
The real problem with asset management, however, is macro, the name of the game. No new players heading up the organization will fundamentally move the needle. Not until asset management is reinvented based on the nature of assets it aims to derive alpha from, as I wrote in Asset Management Reinvented, Rethink Asset Management, and Re-risk Asset Management and more.
The most glaring (but not only) problem with asset management is that its constructs are oligarchically controlled and based on best-practices formed by an index-of-self, leading by definition to infinite regression. Then it deploys ten-levels of embedded bottom-heavy distribution that commoditizes risk into unreproducible critical paths. Demonstrating how self-proclaimed risk managers know little about risk. A stubborn thesis of finance, soon after deployment, incapable of tracing the dynamically evolving nature of the assets.
No monism of absolutism in finance can trace the dynamic nature of assets it aims to support. Simply put, no flat-world construct of finance can trace a round-world of assets, no matter how many different variations of a flat-world you invent.
CalPERS not only needs a total fund strategy, but a 360-degree renewal strategy correlated to how it, directly and indirectly, supports California. Not by adhering to dumb presumptions of sustainability nonexistent anywhere in the universe, but abiding by the first-principles of nature.
CalPERS’ problems are not the players but its investment game. Macro over micro. Cause over consequence. Unchanged, the rotating cast of characters, vying to give the juke-box of the largest pension fund in the country another whirl, will never leave.