CalPERS Chief Investment Officer Ben Meng Lied About Private Equity to State Senator Dr. Richard Pan at Joint Pension Committee Hearing

CalPERS continues to tell blatant lies as if it thinks no one is paying attention.

As we’ll show below, CalPERS’ Chief Investment Officer Ben Meng lied repeatedly in response to a question by a state senator, Dr. Richard Pan, both in terms of Meng’s actual statements as well as the implications Meng tried successfully to convey to Senator Pan.

It had been our intention to refrain from criticism of Meng for a while – he joined CalPERS just six weeks ago and could be excused for the ordinary mistakes of learning a new job. But his lies at the legislative hearing were quite serious transgressions and looked willful. Moreover, he directed the misrepresentations to one of the most respected members of the legislature, Senator Ricard Pan, who is a physician and has chaired the state senate pension oversight committee. Commentators have noted to us that Pan bears a seriousness about his role that strongly resembles one of his predecessors in the senate pension committee chair role, Adam Schiff, who went on to his current office as a member of Congress.

This exchange took place at a joint hearing of the Senate Labor, Public Employment and Retirement and Assembly Public Employment and Retirement committees on February 13. A prominent retiree called my attention to the relevant segment, which starts at 1:15:45.

It was gratifying to see Senator Pan ask an important question about CalPERS’ private equity strategy and do so in a way that showed he appreciated the issues involved. That made Meng’s misdirection even more disturbing.

State Senator Dr. Richard Pan: To what degree do you think what steps CalPERS is able to take, as you are in the private equity market, to try to not just maximize returns, that’s obviously goal 1, but also sometimes returns are dependent on what fees people take out as well. You often see articles criticizing the level of fees being charged by these private equity funds. So what are things CalPERS can do to lower the fees, which actually then increases the returns as well and still be able to participate in this.

CalPERS Chief Investment Officer Ben Meng: So Senator Pan, that’s very good questions. Please go to slide 15, the new proposals under discussion, under consideration at CalPERS, the Innovation/Horizon fund. So you are absolutely right, that you know….there are two points when we look at private equity as an asset class. It has delivered the best performance to us in the past. We have all the reason to believe that outperformance is going to continue. But you raise a very good point, there are certain things about private equity as an asset class that we do not like, for example, higher fees. But again the performance we are quoting is net of the fees, after all the fees it is still stands as the best performing asset class. But there are things, as you said, higher fees, lack of transparency, lack of control.

And that is exactly why we are proposing and considering on slide 15, the Innovation/Horizon, that’s the innovation that Marcie was referring to. So in order to achieve 10% return, we need the innovation. Without the innovation, it’s less likely that we can get the target.

But doing the new business model under consideration will reduce the fee, will have more transparency, not less, and will have more control, because we are bringing a lot of investment decisions in house. We have more control in terms of what type of investment, what kind of strategy we will engage, and what is the societal impact. Currently, under the existing model, we have very little say, very little control, in terms of what kind of investment, about what kind of information, the transparency they can share with us. So that’s exactly to your question. We want to continue to benefit from the higher returns, but mitigate the things that we do not like.

Senator Pan: So just to clarify, the Innovation/Horizon in slide 15, those are things are actually being done in house?

Ben Meng: It’s being considered now. So that’s the discussion. The proposal is to bring halfway in house, not all the way in house. Half in house, but we have more control, more transparency, and lower risk.

Senator Pan: So instead of just essentially hiring an outside hedge fund manager, whatever else, for some of these things you’re actually having people in house who will look at some of these things, working….

Ben Meng: Half way.

Senator Pan: I get it. Half way. [crosstalk] Partially in house. But bring some of it in house so therefore we can lower the cost and increase transparency.

This is flagrantly false. If this testimony had been made under oath, Meng would have committed perjury. The only correct thing he said about Innovation and Horizon were their names.

The Innovation and Horizon schemes do not bring any private equity activities whatsoever in house. To testify that it was happening to any degree is a blatant lie. As Stanford’s Dr. Ashby Monk stated last August, and the basic structure of the scheme has not changed since then, CalPERS is setting up new general partners that are completely external to CalPERS.

The other claims Meng made are also clearly false. CalPERS will not have more control. CalPERS in fact will not have any control whatsoever, since it will not employ anyone in these entities nor have any seats on their boards. The investment vehicles will have only powerless advisory boards that are not even selected by CalPERS!

Similarly, the only way influence CalPERS would have on having the investments meet social aims is via the broad policies it sets by contract. CalPERS could stipulate the same requirements in a separately managed fund with a large established private equity fund manager.

Finally, we debunk CalPERS’ claims regarding “greater transparency” in our companion post today. CalPERS admits that there will be no greater disclosure to beneficiaries and California citizens, when it could, as the sole investor in the new vehicles, make public the legal agreements and provide more detail on the funds’ ongoing performance.

Finally notice that Meng didn’t have to offer this barrage of lies to respond to Senator Pan. Senator Pan didn’t ask what CalPERS was doing to lower fees but what CalPERS could be doing. The committee hearing was about to end, so there was no risk of Senator Pan getting into a lengthy conversation about possible strategies. Meng could have mentioned a range of options, like co-investments, larger commitment sizes, bringing private equity in house, and remained silent on whether those were actually part of CalPERS new private equity plans. The scheme never had reducing fees as a goal, and General Counsel Matt Jacobs has confirmed that more transparency would “defeat the purpose” of this initiative. But Meng launched into a “try to fit the square peg in a round hole” sales pitch, apparently because that was what he thought he was supposed to do.

Now admittedly, Meng was put in a position where it would have been incredibly risky for him to have been forthcoming. CalPERS CEO Marcie Frost, who is clearly pushing the half-baked private equity scheme hard, was sitting at his side. And even if she hadn’t been, she would have been sure to find out precisely what Meng said to the state legislature. Frost is Meng’s boss, and Frost has shown no compunction about forcing out a high profile, impeccably credentialed hire (the fact that former Chief Operating Officer Elisabeth Bourqui showed up at the board meeting immediately after her “resignation” with a high-powered employment lawyer at her side was clearly intended to convey that Bourqui’s departure was not voluntary).

This incident shows what a terrible mistake it was for the board to eliminate having the four most important officers report to them: the CEO, the Chief Investment Officer, the Chief Actuary, and the General Counsel. All CalPERS senior executives now report to the CEO.

In private sector asset management firms, no one would ever become the CEO without having considerable investment expertise and likely direct investment management experience; you’d have no credibility with the troops or important outside constituencies otherwise. But at CalPERS, the political aspects of the CEO role are sufficiently important that it has become acceptable to have CEOs with close to zero finance knowledge. That makes it critically important for the Chief Investment Officer to be able to speak candidly to the board and external parties without fearing retribution by a know-nothing CEO.

Getting rid of these direct reporting lines amounted to the board embracing a policy of “Ignorance is Bliss.” CalPERS’ 65-68% funding ratio, even after one mini-bailout by the state (a second one is underway) shows how well this policy has worked out.

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  1. The Rev Kev

    Uh oh – I think that Ben Meng just bit the big one. Lying his face off to a Senator? That Richard Pan is not a political hack but his Wikipedia shows him to be a professional ( with what to my eye appears to be a willingness to take action when required as shown by his reaction to the measles outbreak in that article. That answer that Meng gave Pan was just a verbal smokescreen that meant nothing. Half in house? Pan, being a doctor, might have thought of that phrase of being half pregnant. I can guess what half would be in house though. The half that is responsible for paying all the fees and the bills while all the profits are all in the other half. I wonder now if Meng may not be toast before the end of the year. It would not be the first time with CalPERS that a new hire was unceremoniously given the boot in a short order of time. I have been thinking of CalPERS and the political angle. Any company worth billions has a political angle and more so with CalPERS because of their structure.

    I have to confess though that watching CalPERS is like watching a chorus line doing a dance routine in a minefield. You know that it is not going to end well and you may have your hands over your face but you just cannot resist peeking through your fingers to see it happen. I will say that with CalpERS’s current trajectory, there is no path that they can take that they can win in the long term. Each scenario ends in disaster for CalPERS’s management and most of its members. And it won’t be just the men paying for what is going to happen like before and so may I mention the article at

    Of course a new factor is Governor Gavin Newson. He has just been elected as Governor and usually any mistakes in the first year of a politician can get blamed on the previous administration but after that, any crisis are all his own. I would guess that Newson wants the maximum two terms like his predecessor which means that he will be the Governor until 2027. So if he is depending on the fact that there will be no crisis with CalPERS between now and then he must be a very brave man indeed. Courageous even. But if there is another financial crisis which causes CalPERS to fall over then it is a case of Katy bar the door. And Newson will own it all.

    There may be future talk of asking Washington for a bailout but with Trump in power, he will never help the Democrats in California. Even if he wanted to, there would be 49 other States looking to see what happens for their pension funds (yeah, I see you looking Kentucky) so no, it will not happen. It will be said that as California has the world’s 5th largest economy at $2.7 trillion, that they have the money to do it themselves. But California is a State so cannot simply print its way out of trouble. Hard choices will have to be made to fund the deficit that CaLPERS is building up and no matter who Newson cuts it from, he will make himself political enemies. In politics it has been said that a week can be a very long time. Eight years would be an eternity then. Sooner or later Pan will get together with Newson as he gets a handle on just what CalPERS is up to and hopefully give him Newson a heads up. Does Newson have the ability to reform CalPERS? Depends on how the laws are written but there would be ways to put pressure on CalPERS and maybe at the very least, have a few investigative committees kill off those private equity schemes. Time will tell but the clock is ticking on this one.

      1. The Rev Kev

        Thanks for that. I miscopied it the first time and that it the way it stayed the rest of the comment. His Wikipedia article makes interesting reading.

    1. tegnost

      I can guess what half would be in house though. The half that is responsible for paying all the fees and the bills while all the profits are all in the other half.

      pretty much the standard grift for my adult lifetime, are we going to see a change in the culture, or be feed for the vulture?
      What a great series this is, creates it’s own track record
      I’ve noted tis before, but it’s worth repeating. Why in the highly credentialed meritocracy of california is marcie frost the ceo of this gigantic fund? California is also known for loose ethical standards when it comes to the almighty dollar

  2. flora

    Is he smart enough, or clued in enough to CalPERS’ staff and Frost’s machinations, to know he lied? (This is not a snarky question.)

    Thanks again to NC for continued reporting on CalPERS, pensions, and PE.

    1. Kevin Carhart

      Good question. From looking at the video,he seems blinkered, not especially cold-blooded in his own right, but could be snowed by the claims that PE firms hand him, which he then passes on in the hearing. He slips from referencing something with the title “Innovation” to innovation itself – “we need the innovation,” a recipe for capture. On paper, reading the transcript, I thought it made my blood boil and that he was deeply slippery and doing a sleight-of-hand with language. Watching the video, it seems more like extreme credulity. Which is worse, blinkered & credulous, or sociopathic?

      I wrote to Dr. Pan.

      1. Yves Smith Post author

        Thanks so much!

        FYI, Marcie Frost has sold the board on the idea that this scheme is innovative….when it isn’t (this is the same as a separately managed account, except at much greater cost and risk by virtue of CalPERS putting untested general partners in business). And even if it were, despite the hype, innovation isn’t a virtue unless the new process delivers sufficient benefits to justify the implementation costs.

        I also think Meng’s not great English skills are leading you to cut him more slack than he deserves. He is a highly accomplished professional who has $1.7 million in compensation authorized for his role.

        1. Kevin Carhart

          Thank you! If that’s true, then this (the point about Meng) is a bit fascinating. Are Frost and others in the sidelines using his ability to invite forbearance/slack, as a tool in order to be a brilliant, psychologically-manipulative, used-car salesman? If I’m walking right into it and flora was not entirely sure either, then I bet he can snooker a lot of beneficiaries and others if he is C.I.O. for a while to come. I think it’s helpful to be hashing this out early and put together the necessary arsenal for “reading” the guy critically. $1.7 million! I was not aware of that. He signifies that he is like an intern or just out of high school or something.

  3. PressGaneyMustDie

    “Ben Meng: Half way.”

    Half way house is more like it. I feel sorry for Mr. Meng if he is dutifully parroting a big lie to keep his job & a roof over his head. Moral hazard, I can understand. What I cannot understand is the CalPERS staff & board majority pushing hellbent deeper down the private equity rabbit hole in light of the Kentucky debacle. Either powerful outside figures are pulling strings or certain staff members are placing future employment opportunities ahead of CalPERS members’ interests. Given CalPERS history within my lifetime, suitcases of cash remain a possibility. Follow the money, I guess.

    Please keep up the good work.

  4. David in Santa Cruz

    “There is nothing so difficult as getting a man to understand a thing as when his salary depends on his not understanding it.” — Upton Sinclair

    Follow the money…

  5. vlade

    Half house. Or, a house divided, which as we know, can’t stand.

    Is there any way to attract Senator Pan’s attention to NC’s articles on this? If I was him, and found that I was at best misled on an issue that can amount to misappopriation of funds/fraud, I’d be pretty furious.

    1. Yves Smith Post author

      Thanks for the suggestion!

      Yes, he has an e-mail form on his website:

      State legislators don’t get anywhere near the amount of correspondence that their Federal counterparts do, so if California readers were to e-mail him, I am sure he would be interested (not just in the fact of the article but that beneficiaries and voters are taking note).

  6. Clive

    This is just crazy made up nonsense. You can bring management of *some* of the funds in house (CalPERS are the Limited Partner in an existing fund or, if they wish, act in the same capacity as the General Partner if they want to create their own bespoke fund from scratch for some reason) and leave the management of *some* of the funds to a third party external manager (CalPERS aren’t the Limited Partner, the external manager is). That way you could, I suppose, benchmark your in-house team against a external manager to act as a control group.

    But you can’t somehow be a little bit of a fund administrator and a little bit of an investment manager on the same fund. It’s like a priest trying to say they can hear their own confession.

  7. PlutoniumKun

    Just craziness upon craziness.

    I thought Yves revelations about Marcie must surely bring this pot to the boil – can it really be that the media is still ignoring this story? I’m astonished that it doesn’t seem to be a big issue in California.

    Maybe some Californians here can enlighten me? At the very least, are these articles not being shared on social media by Calpers beneficiaries? If I was in any way dependent on a pension from these characters, I’d be up in arms.

  8. none

    I still want to know why the hell CalPERS staff is so tenaciously pushing this PE scheme. Obviously when there’s such an enormous pile of money to shovel around, the shovellers will do what they can to make sure some of it lands in their pockets. Is there any money trail to follow? And is the state AG looking the other way?

      1. Tom Stone

        Once again, California is a one party State and the corruption at CalPers is BAU.
        The SF faction is now incharge, for a better unerstanding of what that means I recommend looking at the Wiki entries for Senator Leland Yee and “Shrimp Boy” Chow.
        AG Becerra is no more xapable of “Seeing Evil” than Kamal Harris was when she was AG.

      2. Yves Smith Post author

        The AG thinks his job is to defend CalPERS, even though he has a constitutional obligation to enforce the laws of the state.

        If someone were smart, and I know some smart people who are thinking about a fiduciary duty suit versus the folks CalPERS ends up contracting with (assuming this idea gets done) and the execs and board, they would include the AG in the suit for his failure to act (there’s apparently a clear documentary history of his position on this issue).

  9. anonymous

    Yves, given that you have shown that the reasons provided by CalPERS execs are false, any thoughts on WHY are CalPERS execs pushing so hard to create this separate legal entity for private equity? Why are they willing to continue to catch grief from you and others? What is the benefit to CalPERS or to them? Thank you.

  10. Yves Smith Post author

    Former board member JJ Jelincic has all but said that he thinks there is some sort of overt corruption:

    He has also says he expects that someone will wind up in prison if the PE scheme is implemented.

    The less nefarious explanations include:

    Criminal levels of incompetence (if you saw the board meeting in which John Cole went on about his lengthy discussions with candidates to run the ventures about their “shared values,” this isn’t nuts. Cole comes off as not understanding he’s the bunny who had a conversation with a wolf about shared values at a moment when the wolf wasn’t hungry).

    Desperation to reduce transparency. Former Chief Investment Officer Ted Eliopoulos gave a truly bizarre speech to the board in 2017 when he went on about how hard it was for CalPERS to invest in PE, and talked about the attack on staff. CalPERS can’t take the heat of having its incompetence and lying exposed, so the response, rather than address its shortcoming, is make sure no one can see what it’s up to.

    1. David in Santa Cruz

      I call it Madoff Syndrome: “But we have to invest our money with crooks! The crooks are the only ones making any money!”

      Gee, I wonder why that is?

  11. gab

    As a CALPERs beneficiary, I’m curious about the “mini-bailout by the state (a second one is underway)”

    Anybody know what Yves is talking about here?

  12. monday1929

    Meng, paraphrased: “Private equity has delivered above average returns in the past and we have every reason to believe it will do so in the future”—- I guess he has not read his own prospectus, or any prospectus Ever ; you know, about past returns not indicative of future returns?

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