CalPERS Board Members Talk About CIO’s Method, Performance

Bloomberg published a very interesting piece this week featuring interviews with several CalPERS board members who talked about the pension fund’s chief investment officer, Ted Eliopoulos.

The piece is timely because CalPERS returned 2.4 percent in the most recent fiscal year, a number that falls short of the fund’s assumed rate of 7.5 percent. This came after several years of strong returns in the high-teens.

Bloomberg also talked to Eliopoulos himself, who re-iterated his long-term approach to managing the fund’s portfolio – an approach where overall process is more important than any one-year’s return. Eliopoulos told Bloomberg:

“We truly believe that a long-term investment horizon is both our responsibility and it’s our advantage,” Eliopoulos, 51, said at his Sacramento headquarters. “We think of everything we do in terms of the very long-term horizon.”

Board members made interesting, and largely supportive, comments about Eliopoulos:

“You’ve got to quit looking at the portfolio every day,” said Richard Costigan, a Calpers board member who backed Eliopoulos when the panel’s elected and appointed members replaced Joe Dear, who died of cancer last year. “I’ve got the little app on my phone that tells me what my portfolio is worth, and it stresses me out. One minute you’re up, two days later you’re down 3 percent, then you’re back up.”

“I’m very comfortable with what Ted’s doing.”

[…]

“When Ted became CIO, he told me he really wanted to be a CIO who focused on improving the management, the risk management and the efficiency of the operation,” said Phil Angelides, a close friend who served as California’s treasurer and was on Calpers’ board. “He was less interested in being a CIO who was known for his market insights.”

[…]

“His risk tolerance and my risk tolerance are just different,” said J.J. Jelincic, a former labor leader elected to the board in 2009 to represent workers. “In down markets, he looks a lot smarter than I am, and in up markets, I look a lot smarter than he does.”

It will be many years before any proper evaluation can be made of Eliopoulos’ tenure. He continues to shake up CalPERS’ portfolio by exiting hedge funds, culling private equity managers and selling off real estate.

These are strategies that, like CalPERS’ overall portfolio performance, can only be judged over the long-term.