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Next in line at CalPERS

Date: Tuesday, April 29, 2008
Author: Raquel Pichardo, Pensions & Investments

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A former Barclays Global Investors bigwig, the head of a major charitable foundation and a Russell Investments strategist are among those who could fill the shoes of departing CalPERS CIO Russell Read, recruiters and industry watchers said.

In a surprise move, Mr. Read, chief investment officer of the $240.1 billion California Public Employees’ Retirement System, Sacramento, announced last week he would step down on June 30 to launch his own investment shop that will focus on green-technology and sustainable investments.

Observers cite just a few who have the combination of a strong investment background and political savvy to serve as the investment leader at the nation's biggest pension fund.

Frederick Grauer, BGI's former chief executive and chairman for 16 years, and now on the board of the Commonfund, Wilton, Conn., has the right background to step in, said John Casey, founding partner and principal at Casey, Quirk & Associates LLC, Darien, Conn.

Mr. Grauer stepped down from BGI a decade ago but he's still active in the investment community. The Commonfund is a non-profit investment management firm with more than $40 billion in assets under management. “Being on the board of the Commonfund has kept him in the fray,” said Mr. Casey. The fact that Mr. Grauer resides in Northern California is also an advantage, he added.

Mr. Grauer did not return a call for comment before press time.

Susan Manske, vice president and CIO of the $6.8 billion John D. and Catherine T. MacArthur Foundation, Chicago, and Randy Lert, chief portfolio strategist at Russell Investments, Tacoma, Wash., also have the right investment acumen, recruiters said.

'Very good experience'

“They have very good experience with both traditional and alternative asset classes,” said Alvin Spector, an executive recruiter at Lantern Partners, Chicago. “Both are known to be good leaders,” he added. Neither returned calls for comment before press time.

Internally, Curtis Ishii, CalPERS' senior investment officer for fixed income, had been up for the CIO slot that Mr. Read ultimately landed in 2006. Mr. Ishii could not be reached for comment.

George Diehr, vice president of the board of administration and chairman of the investment committee, said the board will discuss a replacement at its May 12 meeting and will likely hire an outside recruitment firm for the search.

Mr. Read is stepping down a mere four months after putting the most extensive overhaul of the pension fund's investment portfolio in the last decade in place.

“It was a surprise,” Mr. Diehr said of Mr. Read's resignation. “Russell was a creative person and had a lot of ideas. He took us into commodities and the inflation-linked asset class.”

In an interview, Mr. Read said “CalPERS has been the most satisfying investment role in my career. ... However, I've had a long-standing interest in environmental and clean technology.”

In December, Mr. Read began a radical shift in the pension fund's allocation, raising its private equity and real estate allocations and putting half of its total investment portfolio into international markets.

The system also created an inflation-linked asset class that includes investments in commodities, infrastructure, timber and inflation-linked bonds. Some 5% of total assets will go into that asset class.

Mr. Read considers the inflation-linked asset class and the internationalization of the portfolio his biggest accomplishments.

Since early 2007, CalPERS committed $600 million to private equity firms that pursue green-tech investments.

Mr. Read also pushed for more green-friendly investments. CalPERS' new forest policy, approved in March, allows managers to invest in nascent carbon markets and cellulosic ethanol, a biofuel under development.

“What I didn't realize two years ago is how quickly the need would evolve,” he said of green-friendly technology. His time at CalPERS and his efforts in steering the nation's largest pension fund toward more ecologically friendly investments have allowed him to connect with investors, policy-makers and scientists in this field, he said.

Mr. Read has yet to firm up plans for his new venture, but expects it will have offices on both coasts. His wife and two sons have remained at their Maine home throughout his time in California, but his daughter has lived with him.

One source, familiar with the board and its staff, said the geographically split family was a source of concern for some board members who wondered if that was a sign of Mr. Read's intention to return to the East Coast. Mr. Read could not be reached for a response.

Mr. Read joined CalPERS in June 2006. Under his watch, the fund grew to $240.1 billion from $208.3 billion.

“Of course it's challenging,” he said of the CIO role at CalPERS, in the interview. “You can have an impact on capital markets and public policy that is unique among American investors.”

“I had expectations that Russell would be a long-standing member” at CalPERS, said Mark Anson, Mr. Read's predecessor and close friend. But Mr. Read is pursuing an area he long has been interested in, said Mr. Anson. Mr. Anson left CalPERS in 2006 and is now president and executive director of Nuveen Investments Inc., Chicago.

Mr. Read is the second high-level official to leave CalPERS this year. In February, Christianna Wood left her post as senior investment officer and head of CalPERS' global equity portfolio to become chief executive officer of Capital Z Asset Management, a New York-based hedge fund incubator.

Despite Mr. Read's short tenure on the job, others have left even more quickly. Daniel Szente, Mr. Anson's predecessor, was at the helm for only 16 months before he resigned to join an investment management firm.

The turnover “speaks to the magnitude of this job,” said David Morris, Houston-based managing partner at recruiting firm Hedrick & Struggles International.

CalPERS is a political machine and CIOs need to represent a number of constituents with differing agendas, recruiters said.

Still has freedom

Mr. Read said staff still has freedom to implement new investment ideas. The board sets the policies and risk targets, but within those parameters, “the investment staff gets to call the shots,” he said.

CalPERS trustees praised Mr. Read's broad vision and range of ideas.

“We live in a world that is rapidly changing,” California State Controller John Chiang, in an interview. “He has extraordinary vision as to how the world is moving ... His power of perception added great value” to the portfolio.

Contact Raquel Pichardo at rpichardo@pionline.com