No, CalPERS isn’t technically an SWF, but I still like to discuss the fund in this forum when it seems relevant. After all, this behemoth operates within the confines of a large government bureaucracy, which means there are plenty of parallels that can be drawn from CalPERS back to the SWF community.
And, just like many SWFs, CalPERS has had a very tough few years, which highlighted some operational areas for which CalPERS was woefully deficient. As The Economist recently noted,
“Admittedly, CalPERS is not the only public pension fund in America nursing a nasty hangover. But its woes are striking because they stem from racy investment bets, poor risk management and a lax attitude towards potential conflicts of interest at an institution that was supposed to be a model of modern fund management.”
And so, again like many SWFs, CalPERS recently launched a re-evaluation of its internal governance practices (which is, I have to admit, pretty ironic). Enter Joe Dear: the man in charge of the clean-up.
Who is Joe Dear, you ask? Is he some financial sophisticate with unparalleled mental processing power that can literally derive option prices while running on a treadmill? No. Don’t get me wrong, when I interviewed Dear up in Olympia when he was the Executive Director for the Washington State Investment Board, he came off as extremely smart and savvy. But his value to CalPERS (and the WSIB) is not his financial knowledge; it’s his ability to manage the internal processes governing the investment operations of large investors.
I refer you to a nice Bloomberg article describing the man’s path to the world of high finance (the article reads a bit like a companion piece to the recent Institutional Investor article on Alaska’s Jeffrey Scott). It highlights the fact that Dear came up through the labor movement and local politics and only came to finance much later in life:
“In 1985, he made his name as an able negotiator when he became head of the Department of Labor and Industries, the state’s workplace safety watchdog….Four years later, Dear returned to Olympia to become chief of staff for Governor Gary Locke, a Democrat. In Locke, Dear found a fellow “management geek” obsessed with making government more efficient.”
I guess the reason I’m interested in Dear’s rapid rise to perhaps the top CIO job in the United States stems from the implicit recognition on the part of CalPERS that it needed to get the internal governance and management systems right. In fact, hiring Dear illustrates that governance was perhaps as important (or more so) than going out and getting all the investment talent money can buy. You think I’m reaching here? OK, hear it from the President of CalPERs’ Board:
“We didn’t need another investment professional; we needed a manager.”
So true. However, I’d say that in Joe Dear, CalPERS got both. And so, even though CalPERS has some pretty intractable problems to overcome, I’m cautiously optimistic for the behemoth’s future.