Has CalPERS Come Clean With Its Board Over Pending $500 Million Carlyle Deal, Tainted by Ownership of Carlyle Shares by Departed CIO Ben Meng?

CalPERS has not covered itself with glory in how it handled oversight of its former Chief Investment Officer Ben Meng, both while he was in office and during his ugly exit.

As we’ll discuss, even the brief visible portion of the Monday emergency board meeting triggered by Meng’s departure showed Board President Henry Jones’ ham-fisted railroading of fellow board member questions.1 Based on that snippet, as well as long-visible bad governance habits, it is reasonable to assume that staff’s disclosure to the board over l’affaire Meng, even in closed session, was no more than a modified limited hangout.

That means that CalPERS’ staff is implicating itself in Meng’s questionable conduct by proceeding with transactions that were tainted by his conflicts of interest. We know of at least one: a $500 million investment in a Carlyle vehicle that was initiated on Meng’s watch and is still in the pipeline. At a minimum, the board should have been informed about this thorny issue and how CalPERS intends to handle it.

We asked CalPERS to comment on what it planned to do about pending transactions started under Meng’s supervision with the fund managers in which Meng held stakes (Blackstone, Carlyle, and an Ares credit fund). We received no response.

CalPERS has further damaged its flagging credibility via its poor responses and inept messaging. The big bomb was Meng’s resignation with immediate effect. No one with large organization experience buys CalPERS’ and Meng’s implausible spin that Meng left suddenly for health reasons. Employees in good standing don’t depart that way; they give notice. CEO Marcie Frost, who had been Human Resource Director during her tenure at Washington Retirement Systems, should have known full well the signal she was sending by having Meng resign on the spot, that Meng was badly damaged goods.2

But there were plenty of other screw-ups. A partial list:

Pretending CalPERS didn’t know Meng had private equity conflicts of interest until April 2020. Meng disclosed those holdings in January 2019. CalPERS should have had Meng’s trading records and known he had not sold them

Not encouraging Meng to amend his Form 700 filing in April 2020 when which would have lessened the damage, especially since CalPERS did not post the From 700 until mid-June. An amended From 700 would have been an acknowledgement of Meng’s error and looked much less like a whitewash

First taking the posture that Meng’s conduct was a personnel matter, then aggressively hawking the “poor Ben” account with personal details. As one beneficiary said, “So much for Ben’s privacy but it did protect the privacy of others engaged in an apparent cover-up.”

Lying to the press by trying to pretend that the Fair Political Practices complaint filed the day after our story broke came from CalPERS. The document was an anonymous and bare-bones filing. A second Fair Political Practices complaint similarly looks to have come from the public; it referenced a Financial Times story which credited Naked Capitalism as the source

What little the public saw of the emergency board meeting yesterday suggested it was part of the continuing concealment. We’ve embedded the rush transcript generated by WebEx at the end of this post.

While still in open session, Margaret Brown asked when the public would be allowed to comment, which was a reasonable surmise since the meeting notice provided a call-in number. General Counsel Matt Jacobs invoked a section of the Government Code that allowed the board to skip comments because it was a closed session, ignoring that they were in the midst of an open session. Brown cited two other sections of the Government Code which she argued pointed to a different conclusion.3 It was obvious that Jacobs didn’t consult the sections in question to make sure he hadn’t missed anything, and Jones cut Brown off.

Controller Betty Yee then asked when there would be a board meeting to address the issues that she’d repeatedly asked to be addressed (both in letters to Jones and in the press) about the adequacy of CalPERS’ conflict of interest policies and the CEO’s oversight.4 Yee pointed out that the meeting as noticed didn’t address her issues.

Jones then took the remarkable position that discussing the scheduling of matters that clearly belonged in open session be conducted in closed session. In other words, Jones on the record stated that he planned to have the board immediately engage in a flagrant Bagley-Keene Open Meeting Act violation.

That probable Bagley-Keene violation comes in addition to CalPERS making statements that amounted to an admission that the emergency closed session was unlawful.

At a public meeting the Thursday before the emergency board session, Deputy Executive Officer Brad Pacheco said the board would discuss only Meng’s departure. Pacheco’s statement shows a willful intent to deprive the public of information which it is legally entitled. Meng resigned with immediate effect 12 days before the August 17 meeting. He was no longer a public employee. The personnel exemption is designed to protect the privacy of employees, not employers.

In addition, if the board really did take up a bona fide personnel issue, the employee would have the right of appeal to the State Personnel Board. Shawnda Westly, who is an ex officio member as the State Personnel Board representative, would have had an obligation to recuse. Did that occur?

As a fiduciary, Jones has a duty of inquiry into matters that affect the performance and reputation of the fund. A sound fiduciary should welcome open and public examination of these issues, and only enter closed session if the investigation merits litigation or the discipline of an employee. As one California lawyer opined, “Jones’ misconduct is outrageous.”

Jones then shut Yee down. He also set the trap that if Yee discussed those issues in closed session, any later public discussion of them would be a breach of closed session. We don’t know if Yee’s concerns were in fact discussed. However, Frost’s post-meeting announcement that “At next month’s meeting, we will bring to the board specific policy options for their considerations.” certainly suggests they were.5

As many observers, including members of the press, told me, that if CalPERS conducted this meeting in secret and did not announce that Marcie Frost was being put on administrative leave while an independent investigation was being launched, then it was obvious that a cover-up was underway.

That begs the question of what additional CalPERS’ dirty laundry is attempting to block from being exposed. We have the pending Carlyle transaction. What else is lurking?


1 The board set themselves up for that by adopting Rosenberg’s Rules of Order, in place of Robert’s Rules of Order. Rosenberg’s Rules gives a great deal of power to the chair.

2 It is remotely possible that Meng thought he was burning CalPERS, but if so, this would be yet another of his many poor calls. The immediate departure wrecked any re-employment opportunities. By contrast, if he’d left with notice, he could easily have presented himself as victim of The Mess CalPERS Has Become and would have gotten a sympathetic hearing in many quarters.

3 This is not a cut and dried matter. One can argue that even the brief open session preliminary to the closed session was ripe for comment. In addition, as discussed in the post, CalPERS’ PR chief Brad Pacheco had told stakeholders that the closed session was to discuss the apparent Meng defenestration. That means the session was improperly noticed (Meng as an ex employee is not entitled to personnel protections) unless Meng has threatened litigation (the provision to allow discussion of pending litigation in closed session is narrow and is limited to actual pending litigation, not theoretically possible litigation).

4 From Yee’s statement:

I am incredibly disappointed to hear about the former CIO’s lapse in both judgment and adherence to standard conflict-of-interest policies. I have called for an emergency board meeting to discuss this situation, review these policies, the CEO’s oversight and implementation of these policies, and any additional safeguards necessary to ensure this does not happen again.

5 It is possible that the staff merely gave the board a pat on the head and told them the staff would deign to consider Yee’s issues next month, with the further slap that it would be part of a regular meeting, and not addressed on an urgent basis as Yee had insisted.

00 CalPERS Aug 17 open session
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  1. Tom Stone

    “Ham fisted” is putting it mildly, and I doubt Ms Yee is happy about being treated with contempt.

    Thankfully we can be sure that Attorney General Basura will be all over this!
    Real soon.

  2. The Rev Kev

    Board President Henry Jones appears to be drowning trying the defend the indefensible. Somebody should really throw him an anvil. I have started to watch CalPERS meetings in the past on YouTube but had to stop as I found that I was fighting to get oxygen to my brain after a while.

    I like how Jones reckons he can turn an open meeting to a closed session and any questioning of this is too hard as they are now in closed session. Blowing off the California State Controller was not a good look though. I wonder if she got on the horn to Gavin later? It seems that with CalPERS’s meetings, it is more like a case of a Schrödinger’s meeting in play as it can be open or closed – depending.

    Actually I think that Jones is going by Rafferty’s rules here. A brief explanation of this term-

    “Rafferty’s rules”
    noun [ plural ]
    Australian informal
    A situation in which there are no rules; used especially when referring to a competition, system, etc. that is not well organized:

    eg ‘It’s hard to regulate CalPERS financial actions, but that’s not an argument for Rafferty’s rules.’

    The thing is, ever since Yves blew up Meng, it is not looking good for CalPERS and frankly it looks like a hot mess. Worse yet, the media has actually taken notice. And no, not Bush Leaguers like the SacBee but the Big Boys & Girls over at the Wall Street Journal and Bloomberg. And this wasn’t a case of Meng being given “Garden Leave” or even “Leaving to Spend More Time with the Family” final notice but more the type where a former employee finds themselves sitting on the pavement outside where they used to work next to a cardboard box of their possessions with two guards walking away.

    It certainly wasn’t a good look when he was banging on the glass doors demanding to be let back in and shouting “I’m a peacock, you gotta let me fly!” At least CalPERS not willing to look at winding back any investments that Meng had a personal stake in will never come back to haunt them. I mean, it’s not like that it will look like a pay-off to Meng on the side.

    Pro-tip to Jones: When setting up a Claymore, make sure that you pay attention to which side has the “Front Toward Enemy” text on it.

  3. CalPERS is not the only corrupt CA state agency

    “As many observers, including members of the press, told me, that if CalPERS conducted this meeting in secret and did not announce that Marcie Frost was being put on administrative leave while an independent investigation was being launched, then it was obvious that a cover-up was underway.

    That begs the question of what additional CalPERS’ dirty laundry is attempting to block from being exposed. We have the pending Carlyle transaction. What else is lurking?”

    One event lurking is a political donation removed from the CA Secretary of State website.

    The CA Secretary of State website previously listed a $500 donation on April 20, 2018 from Yu Meng of CalPERS to John Chiang’s campaign for CA Governor (donation ID #1385799), while John Chiang was the CA Treasurer and a CalPERS Board member, one of Ben (Yu) Meng’s many political donations. A few weeks later, the prior CalPERS CIO formally announced his resignation. CalPERS then hired Ben (Yu) Meng as the next CIO.

    The $500 donation on 4/20/2018 from Yu Meng (listed as Yu Meng employed by CalPERS even though Meng was employed by the Chinese government at that time) for Chiang’s Campaign for CA Governor later disappeared from the CA Secretary of State website. Previously saved screenshots could be emailed to NC. This donation also continues to be listed on the website FollowTheMoney.org. Evidently this organization, unlike the CA Sec of State, does not remove inconvenient public records.

  4. PlutoniumKun

    I think its curious that Meng was essentially shown the door so rapidly at such a precarious time. In my experience of ‘senior embarrassing exits’, they are given the chance to give in notice with a reasonably convincing cover story (and usually a financial package). Apart from anything else, allowing the existing person to save a little face makes it less likely that they’ll spill the dirt after their exit.

    This suggests to me that either Frost panicked over what was about to be revealed, or that Meng did something we don’t know about so egregious that they had no choice but to push him out immediately.

    I wonder what Meng will do next – he seems the type who will do whatever is needed to save his own career and he’s too young to go quietly into retirement. He is very damaged goods now, and maybe he’ll see taking down Frost as useful to protect his own reputation.

    1. flora

      i listened to one of Meng’s online presentations a while back. He’s a very good talker. He worked in all the subtle flatteries suitable to his audience. There wasn’t much substance in the talk beyond audience flattery. He seemed like a pretty good salesman for himself. He might just land on his feet as a salesman at a big PE firm, selling the “sizzle” instead of the “steak”. Buyers, beware.

      1. Yves Smith Post author

        I hate to tell you but I don’t agree. His heavy accent and broken grammar rules him out for any sales job with a US financial institution, save perhaps one in China.

    2. griffen

      He’s bound to receive compensation upon his leaving, whether contractual or not. Spend a few months puttering around the house then start working the phones.

      He’s credentialed and probably has excellent contacts who would look past these indiscretions. As far as we know, he didnt kick any puppies or drown kittens !

      1. PlutoniumKun

        As far as we know, he didnt kick any puppies or drown kittens !

        I guess that rules him out of a job at Goldman Sachs.

      2. Yves Smith Post author

        No, he’s a state civil service employee. There is no mechanism for him to get additional pay except if ordered by the State Personnel Board. Any attempt to pay him extra would be a matter of public record (records of payment to him are subject to the Public Records Act) and a huge scandal.

  5. diptherio

    Yo Hank, you know that uncomfortable feeling you’ve got? That’s the feeling of the walls closing in, buddy.

    1. flora

      jones, frost, abustonen, meng… ya got yer equity (diversity and inclusion) right there. Dat’s da main thing. /s

      Thanks for NC’s continued reporting on Calpers, PE, and pensions.

      1. flora

        adding: lest anyone misconstrue the “dat’s da” phrase, its was newpaper columnist Mike Royko’s Chicago-style working class slang as in “da Bears”, Chicago’s football team. ;)

  6. Matthew Saroff

    As always, I wonder cui bono?

    Someone in Calpers is getting bribes, or kick-backs, or has the promise of a VERY comfortable sinecure in a few years.

    Also, who is really running the organization?

    Jones is clearly a tool, and Frost is clearly a front, and someone has to be leading them around by the nose.

  7. David in Santa Cruz

    Why is Jones so desperate to hide the State Controller’s reasonable inquiries from public view? Is it that the high school educated CEO and white-collar criminal defense lawyer GC have not the slightest clue how to run a conflict-of-interest compliance department — or even why one is necessary when you’re investing billions in taxpayer dollars held in trust?

    Or is it that the conflicts of interest run far deeper that the CIO’s stock holdings?

    Follow the money…

  8. EoH

    Even forced departures usually entail an attempt by the employer to get the soon-to-be former employee to sign a separation agreement. It would ordinarily include such things as keep quiet clauses and an attempt to force the employee into private arbitration of disputes (assuming those are valid in California and in this context).

    Regardless, this episode is another illustration what a clusterfk Frost’s management of CalPERS and Jones’s management of its board really are.

    1. Yves Smith Post author

      Meng’s departure was decided in a day. It is doubtful CalPERS could work up a proper release in time. And as a state civil service employee, CalPERS could not pay for the gag, which is how these things normally work. Similarly, as a civil servant, any dispute goes to the State Personnel Board, and those hearing records are public. Meng can’t be forced into silence. The one thing CalPERS could have offered in return for his silence is hewing to a narrow story about his departure, but that is so non-standard, I don’t see how a tight agreement could have been worked up that fast.

  9. Trustee

    Ben Meng was a civil service employee. He quit. He will receive pay through his last day plus and earned but unused vacation. Was he pushed? Maybe but he quit.

    He would have had the same appeal rights that any other civil servant. He could have appealed any discipline to the State Personnel Board (SPB). The grounds to discipline California state employees are listed in Calif Government Code section 19572. However, he quit. You can’t appeal your own actions. He quit.

    Ex-employees are not employees. If the Board had actually discussed a “personnel issue” one would have expected Shawnda Westly to recuse herself since she is on the SPB which would have heard any appeal..She didn’t.

    Do Marcie Frost, Matt Jacobs and Henry Jones hope that whatever they are trying to cover up stays hidden? You bet. Will it stay hidden? Don’t count on it.

    1. flora

      For lower level civil service (cs) employees the customary notice is one pay period for a normal resignation. For high level employees the notice period is usually much longer, 2-3 months or more, to allow transition of duties and advertising for position.
      A high level state cs employee resigning without notice raises oh so many questions.

      “California Regulator Will Investigate Former Calpers CIO Ben Meng ”

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