For CalPERS CIO, Lack of Stock and Bond Experience Not a Problem


The LA Times on Sunday published an interesting and thorough profile of CalPERS chief investment officer Ted Eliopoulos.

It chronicles Eliopoulos’ beginnings as an Ivy League tennis star, his appointment to CIO of the country’s largest public pension fund, and his headline-making decision to pull out from hedge funds.

The piece also dives into why Eliopoulos was an interesting choice for the CIO position, given that he was an expert in real estate but had little experience with stocks or bonds.

From the LA Times:

In turning to Eliopoulos, a consummate insider, CalPERS’ board made what is in some ways an odd choice.

Trained as a lawyer, not an investment professional, Eliopoulos has spent much of his career in state bureaucracies and had never directly managed stocks or bonds — more than 70% of the total CalPERS portfolio — before being named interim chief investment officer a year ago.

His area of expertise had been in buying, selling and managing real estate, which makes up only 10% of CalPERS’ portfolio and remains a rehabilitation effort.


Some believe even the most deft investor can’t keep the system solvent over the long term. But his supporters said he’s up to the task.

Former state Treasurer and Democratic Party Chairman Phil Angelides called Eliopoulos, whom he mentored, a methodical thinker and steady manager.

“He’s not threatened by having good, strong people around him,” Angelides said.


His lack of stock-and-bond experience may matter less than his ability to manage the massive investment operation that includes 400 in-house staffers and dozens of highly paid consultants and advisors, said investment professionals.

“It’s perfectly possible to be a very effective leader even if you don’t have all the experience in the weeds,” said Michael Rosen, a principal at Angeles Investment Advisors, which advises institutional investors.

Read the whole profile here.


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CalPERS Looks to Cut Two-Thirds of Private Equity Managers

cutting a one dollar bill in half

As part of its quest to reduce overall costs, CalPERS announced on Monday that the fund would be cutting the number of private equity managers it employs.

The cuts could be deep – the pension fund currently has 291 such managers, but that number could fall to below 100.

More from

Eliopoulos told the Financial Times he would use “every possible lever” to cut costs, and indicated that the number of managers CalPERS uses for private equity could fall below 100, from 291 currently. He voiced a desire to team up with other investors on big deals

“By having fewer managers, at larger scale, we will be able to reduce our overall costs,” Eliopoulos said.

However, there are no signs to indicate that CalPERS will reduce its overall exposure to the asset class, as it has with hedge funds. Eliopoulos said he wanted to “make sure we still have access to the talent that we need”, and the pension is currently advertising for a portfolio manager for its Sacramento, California-based private equity team.

The decision to create a more concentrated portfolio reflects a growing trend in the sector: Larger, established managers are finding it much easier to raise cash for new funds than newer players.

Recent research from Preqin showed that funds launched last year by managers new to the private equity sector accounted for 7% of the $486 billion raised in 2014, the same proportion as in 2013.

CalPERS invests about 10 percent of its portfolio in private equity.


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CalPERS Pays $9 Million in Bonuses in 2014; Up 14 Percent From 2013

swirling one hundred dollar billsAs a result of exceeding investment return benchmarks, CalPERS paid out a total of $9 million in bonuses in fiscal year 2014. The fund paid out $7.9 million in fiscal year 2013.

More details from SF Gate:

The rewards are based on three-year performance verses a benchmark, as well as the earnings of each asset class and individual portfolios, said spokesman Brad Pacheco.

“These awards are part of the overall compensation we provide to recruit and retain skilled investment professionals needed to ensure success of the fund,” Pacheco said.


The biggest bonus earner was Ted Eliopoulos, the chief investment officer, who recorded a $305,810 bonus last year in addition to his $412,039 base pay.

That bonus was paid when Eliopoulos was acting chief investment officer after predecessor Joe Dear died in February from cancer. Prior to that, Eliopoulos headed the fund’s real estate portfolio. He now earns $475,000 in base pay after he was tapped for the top investment job in September.


Four executives outside the CalPERS investment office were paid a total of $295,930 in bonuses last year, the fund said. CEO Anne Stausboll got $113,679; Chief Actuary Alan Milligan earned $75,748 and Chief Financial Officer Cheryl Eason was paid $89,703, almost double a year earlier.

CalPERS says it pays bonuses to compete with Wall Street for talented staff.

The pension fund’s investments returned over 18 percent in FY 2014.

CalPERS Commits $80 Million to Californian Private Equity

Flag of California

CalPERS announced Wednesday it had committed $80 million to a private equity fund focused on Californian companies. The commitment is part of the pension fund’s California Initiative program.

From a press release:

The California Public Employees’ Retirement System (CalPERS) has committed $80 million with GCM Grosvenor (Grosvenor) in a California-focused private equity fund. The new commitment will be deployed through a direct investment vehicle starting by the end of the current year.

The new fund will be known as California Mezzanine Investments and is the third phase in CalPERS’ California Initiative program. It will be managed by Grosvenor’s Private Markets team.

“CalPERS is committed to California,” said Ted Eliopoulos, CalPERS Chief Investment Officer. “It’s great to have a hand in stimulating job creation and economic growth in our home state as we seek the best risk-adjusted returns for the portfolio.”

The fund will seek to invest in Californian companies using mezzanine debt financing to assist in supporting their growth and expansion.

The California Initiative was established by the CalPERS Investment Committee in 2001 as a $1 billion private equity investment vehicle that invests in private companies in traditionally underserved markets, primarily, but not exclusively, located in California. The objective is to generate attractive financial returns. As an ancillary benefit, the California Initiative was designed to create jobs and promote economic opportunity in California.

Grosvenor is one of the world’s largest independent alternative asset management firms, with approximately $47 billion in assets under management. It manages multiple emerging manager programs for large institutional investors, including public pension plans and corporate plans. Grosvenor and its predecessors have been managing private equity investment portfolios since 1999.

CalPERS manages $300 billion in assets. The fund has a $31 billion private equity portfolio.

CalPERS Cautious on Real Estate Despite Owning Hot Property


For CalPERS, the empty lot that currently sits at Third and Capitol in downtown Sacramento represents both a past failure and future opportunity.

CalPERS owns the lot, which has sat vacant since the fund lost $60 million on a failed condo development there in 2007.

That’s why CalPERS is being cautious with plans to develop the lot, even if it’s a hot property with the new Sacramento Kings arena being built just a few blocks away.

From the Sacramento Bee:

CalPERS has become more conservative about developing property from the ground up and now says it will take its time before proceeding at the downtown site.

“We plan to be very smart before jumping back into construction,” said Ted Eliopoulos, the newly installed chief investment officer at the California Public Employees’ Retirement System.

That’s not to say the nation’s largest public pension fund is ignoring the site’s potential. With the Kings’ arena set for an October 2016 opening and the downtown market in a state of revival, Eliopoulos said CalPERS and its development partner, CIM Group of Los Angeles, are committed to eventually doing something big at Third and Capitol.

“It deserves a project of scale, an iconic project,” said Eliopoulos, the man who pulled the plug on the original condo and hotel towers in 2007 after construction had begun.

In the most extensive comments the pension fund has made about the site in years, Eliopoulos said CalPERS and CIM are trying to determine “what mix of office, apartment, retail would be most appropriate for the site, from an economic standpoint, from a community standpoint.”

More details on the failed condo development that was originally supposed to occupy the space:

For the past seven years…Third and Capitol has been a humbling reminder, for both CalPERS and the city, of the collapse of the real estate market.

With CalPERS as his major financial backer, Sacramento developer John Saca was going to build twin 53-story condo and hotel towers on the site that once housed the old Sacramento Union newspaper. Along with the Aura condo project proposed a few blocks east, the Saca Towers were going to launch a downtown housing boom.

Neither project materialized, but the Saca project was the more spectacular failure. The fenced-off site, now a ghost town of weeds, trees and concrete pilings, has become known in some quarters as “the hole in the ground.”

Billed as the tallest residential project on the West Coast, the towers got off to a surprisingly strong start.


Eventually, though, the project ran into big problems – namely, $70 million worth of cost overruns caused by troubles with the concrete pilings. After spending $25 million, CalPERS cut off funding in January 2007. The decision was made by Eliopoulos, a private developer who had just joined CalPERS as senior investment officer for real estate.

“That was my first week on the job,” Eliopoulos said. “That was the first decision that I made, to stop the project.”

Months of public wrangling ensued between the two partners, with Saca complaining that he’d been undermined by CalPERS. Eventually, the pension fund got control of the site, but at a cost. On top of the original $25 million, it spent an additional $35 million to satisfy contractors’ liens, repay a mortgage and perform some additional pre-construction work. (The customers’ deposits, parked in an escrow account, were also returned.) CIM Group, which has built several downtown Sacramento buildings and partnered with CalPERS on the Plaza Lofts project on J Street years ago, was brought in to manage the forlorn site and advise the pension fund on possible uses.

CalPERS lost $10 billion on real estate investments between 2008 and 2010. In the years since, its real estate portfolio has seen double-digit returns almost every year.

The fund plans to increase its real estate holdings by 27 percent by 2016.


Photo by Photo by Stephen Curtin

Video: CalPERS CIO Talks Hedge Fund Exit, Market Risk of Climate Change and Corporate Tax Avoidance

The above video features an interview with CalPERS chief investment officer Ted Eliopoulos. Topics include CalPERS’ hedge fund exit, the fund’s stance on corporate tax avoidance, and how climate change has impacted the fund’s portfolio. summarizes a few key points from the interview. On hedge funds:

“One of our prime considerations in reviewing the program is whether we believe we could scale the program to a much more significant part of the overall portfolio,” he said. “Our analysis, after very careful review, was that mainly because of the complexity of the hedge fund portfolio and the cost we weren’t comfortable scaling the program to a much greater size than it currently held.”

On corporate tax inversion:

Eliopoulos emphasised that, in general, tax was something to be addressed by relevant governments as a policy issue, but expressed concern about corporate inversions.
“We think the best approach is for the US government to address this type of a loophole in the context of overall corporate tax reform, and we’ve urged the government to get at it,” he said.

CalPERS Reprimands Two Board Members for Campaign Finance Violation, Bashing CIO

board room chair

Two CalPERS board members were punished yesterday; one for failing to disclose campaign finance documents and the other for publicly criticizing the fund’s chief investment officer.

One board member, J.J. Jelincic, was instructed to stop speaking to the press after he publicly criticized CalPERS’ new chief investment officer, Ted Eliopoulos. Writes the Sacramento Bee:

“He doesn’t have the temperament or the management skills,” Jelincic said in a Sept. 29 Pensions & Investments story about the hiring [of the fund’s new CIO].

And he didn’t stop there. Eliopolous played favorites with staff, Jelincic said, listened too much to outside consultants and made poor investment decisions.

CalPERS board President Rob Feckner called the comments “unfortunate and a breach of board governance policy of civility and courtesy as well as a breach of the CalPERS core values.” Jelincic was then instructed to stop talking to the media.

After the board meeting, Jelincic told the media:

“I’m not sure what the hell it meant other than they didn’t want me talking to the press.” As for the statements he made about Eliopoulos, he added: “It was a comment on a public action.”

The other reprimanded board member, Priya Mathur, was stripped of several leadership positions on Wednesday after repeatedly failing to disclose campaign finance disclosures. From the Sacramento Bee:

Priya Mathur, a board member since 2003, was removed as board vice president and chair of the CalPERS Pension and Health Benefits Committee. She also is out as vice chair of two committees: Board Governance and Performance, Compensation & Talent Management.

Mathur, who is facing a $4,000 fine from the state Fair Political Practices Commission, sat stoically as CalPERS board President Rob Feckner announced the punishment at a board meeting. She didn’t speak and wasn’t available for comment afterward.


The FPPC is fining Mathur for failing to file four campaign finance statements in connection with her recent successful bid for re-election to the CalPERS board.

She had no campaign funds to report, and Mathur has previously described the issue as a paperwork snafu. Nonetheless, “we still believe that rules are rules,” Feckner said.

Mathur has been fined $13,000 by the FPPC during her tenure as a board member. She failed to make necessary disclosures in 2002, 2007, 2008, 2010, 2012 and 2013.

Chart: CalPERS’ Real Estate Returns Since 2000

CalPERS real estate returns

CalPERS announced last week plans to increase its real estate investments by 27 percent. This graph [above] shows the  performance of the pension fund’s real estate portfolio since 2000.

As the graph indicates, the fund’s real estate investments have generally performed well, consistently netting returns of 15 percent or more.

But 2009 and 2010 were disastrous, and CalPERS lost $10 billion on real estate investments over that period.

CalPERS’ latest foray into real estate will be marked by investments in properties with “established demand”, according to the fund’s CIO, Ted Eliopoulos. Such investments include apartment complexes in cities and fully leased office buildings.


Graph credit: The Wall Street Journal.

CalPERS Dials Up Real Estate; Will Increase Allocation By 27 Percent

man in suit holding small model house in his hands

CalPERS has beefed up its real estate portfolio this summer, but the fund is far from finished: by 2016, it plans to increase its real estate holdings by 27 percent.

The pension fund says real estate will largely fill the void left in the wake of its hedge fund exit.

From Bloomberg:

The California Public Employees’ Retirement System, the biggest U.S. fund, is increasing investments in real estate by about $6 billion within a year as it begins to exit hedge funds.

The $295 billion fund had 8.7 percent in real estate as of July 31. Since then, the allocation has risen to 9.9 percent, and the fund has set a target of 11 percent in fiscal 2016, according to documents posted on its website.

Calpers began restructuring its real estate portfolio after suffering a 37 percent loss in 2010, when it wrote off speculative residential investments as property values slumped. As part of the overhaul, the fund has focused on core income investments such as rental apartments, industrial parks, offices and retail space.

The shift will mean an increase in commercial real-estate investments by 27 percent, the Wall Street Journal reported.

More details on the strategy from the Wall Street Journal:

[CalPERS] is focusing on investments such as fully leased office towers and apartments in big cities, which it argues are safer because there is established demand for these properties. In another shift, the giant pension fund has been investing almost exclusively through real-estate funds that manage separate accounts created for Calpers, which offers more control over how that money is invested.

Some of Calpers’ real-estate consultants are warning that moving too much money into pricey properties could backfire. Pension Consulting Alliance Inc. cautioned in a July report to Calpers not to expect “these increases in value to be sustained when interest rates and new construction starts return to more normalized levels.”

Ted Eliopoulos, Calpers’ recently appointed chief investment officer, changed the fund’s real-estate approach in 2011, when he led that group. Since then, the fund has delivered average annual returns of 14% in its real-estate portfolio. But Mr. Eliopoulos acknowledges the recent high returns are unsustainable.

The fund’s goals now are to diversify its portfolio risk and generate steady, modest gains, rather than striving for outsize returns with more speculative bets, he said. Likewise, Calpers on Sept. 15 said it would shed its $4 billion investment in hedge funds as part of an effort to simplify its assets and reduce costs.

“Our strategy is to focus on high-quality real estate,” Mr. Eliopoulos said. “We’re still on track.”

CalPERS was a large real estate investor in the years before the financial crisis and frequently saw returns of 30 percent or more within the asset class. But the economic downturn led to losses of $10 billion, or 50 percent.

CalPERS’ CIO, Ted Eliopoulos, maintains that the fund learned from those losses and staff plan to make less speculative investments this time around.

CalPERS Weighs Withdrawal From Commodities

CalPERS may pull back its commodities investments

California is often on the cutting edge of trends that eventually reverberate throughout the rest of the country. The same is true of CalPERS, the pension fund that was among the first to invest in real estate, hedge funds and private equity.

So when CalPERS announces a dramatic change in investment strategy, other funds drop what they’re doing and listen. Funds are certainly listening lately, as CalPERS is considering a handful of moves that would shift its asset allocation significantly.

Among them: the fund is considering taking all of its money out of commodities. From the Wall Street Journal:

One of the more-dramatic moves under consideration is a complete pullback from tradable indexes tied to energy, food, metals and other commodities, according to people familiar with the discussions. Calpers began making such investments in 2007 as a way of diversifying its portfolio and it currently has $2.4 billion in such derivatives, or less than 1% of total holdings.


The discussions are taking place between the fund’s interim Chief Investment Officer Ted Eliopoulos and Calpers’s other top investment executives. The Calpers board hasn’t yet been informed about any possible changes and no final decisions have been made, the people said.

The move, however jarring, wouldn’t be out of step with other recent investment decisions by CalPERS. The fund has shown a willingness to exit large investments it considers risky. From Wall Street Daily:

CalPERS’ potential retreat from riskier investments is evidence that it’s trying to simplify its portfolio and guard against losses during the next market downturn.

In a sense, CalPERS is turning to a bit of a “risk off” mode in this time of uncertainty.

Ultimately, with the realization that we’re in the midst of the Fed’s continued tapering, talk of interest rates hikes, and geopolitical unrest from the Middle East to the Ukraine, it may be time to dial down risk and play it safe.

In fact, this move is reflective of last fall, when CalPERS hinted at a shift away from complex investments, warning that the fund “will take risk only where we have a strong belief we will be rewarded for it.” This decision came after it had approved a new set of investment goals that reduced future exposure to equities and private equity, while increasing allocations to bonds and real estate.

A similar move by CalPERS also took place at the end of 2012, when the fund chopped commodities investments by more than half – prompting reports that it was shifting from commodities to inflation-linked bonds.

And in both incidences, the commodities markets experienced corrections.

CalPERS is weighing several other ideas, including whether forgo individual stocks in favor of securities that track broader industries.

CalPERS also made headlines last month when it announced it would cut its hedge fund allocation by 40 percent.


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