How Fast Can $360 Billion Grow?

The new boss at CalPERS used to deal in trillions of yuan. This challenge may be bigger

In January, Ben Meng started his job as chief investment officer of a seriously big fund: the $358.4 billion California Public Employees’ Retirement System, or CalPERS, the largest U.S. pension. But neither the scale nor the political spotlight that comes with the role seem likely to intimidate him. For the last three years, he was deputy CIO at the State Administration of Foreign Exchange (SAFE), the tightly controlled $3 trillion reserve fund in China. “It’s not often that an individual has the opportunity to hold key roles for two of the largest pools of capital in the world,” wrote Stephen Schwarzman, chief executive officer of private equity giant Blackstone Group LP, in an email.

Perhaps more daunting for Meng is this figure: 7 percent. That’s CalPERS’s annual return target. It may not sound very high given that the S&P 500 returned almost an annualized 11 percent in the five years through January 2018. But CalPERS made only an annualized 6.3 percent in that period. And deep into both a bull market and economic expansion, there may not be a lot of easy gains to be made from here.

The stakes for CalPERS are high, since missing the mark too widely endangers retirement payments for its 1.9 million members. “We need to do things differently,” says Meng in his Sacramento office. The walls are still bare, and the furniture arrangement is in flux as he tries to find a place where the sun’s glare won’t hit his computer screen.

Meng’s plans to improve returns hinge on private equity. Unlike owning stocks and bonds, investing in private equity funds means holding illiquid stakes in companies that may take years to realize their value. In theory, such investments can play to the advantage of CalPERS as a very longterm investor. Money managers who ignore their institution’s innate strengths and weaknesses, he says, “are the profit center for the other people.”