California Public Employees Retirement System Chief Investment Officer Yu “Ben” Meng opened up about how the $384 billion pension fund plans to recruit talent to run its two long-delayed in-house private equity funds.
“The first generation of private equity founders, they are either retired or are in the process of transitioning to the next generation,” Meng said during an interview with Reuters Breakingviews. “And for most of the firms, they build redundancy in their succession planning. So for those who somehow did not or do not get chosen to be the successor, most likely they are going to leave.”
Should they do that—and take their teams with them—Meng said CalPERS could offer them a lot.
“They don’t have to worry about fundraising, they are captive to us but we are captive capital to them, long-term capital to them,” he said. “They can really focus on doing investments [and] sourcing deals…instead of worrying about raising money [or] investor relationships.”
Meng also said this was only one recruiting strategy CalPERS was considering. CalPERS had no further comment beyond the interview.
In March, the CalPERS Board of Administration approved plans to create two private equity funds with CalPERS as the sole LP, one focused on late-stage venture deals and another on long-hold investments.
Meng told Reuters the late-stage venture fund would focus on life science, healthcare and technology. Both funds would be designed not to compete with CalPERS’ existing $27.64 billion PE portfolio. Meng added the goal was to get the PE portfolio to about $40 billion. The two funds would be valued at $10 billion each, Buyouts has reported.
In January, CalPERS senior portfolio manager John Cole told Bloomberg the pension was talking to two Silver Lake veterans, David Roux and Adam Grosser, about roles running the funds. A few months later, CalPERS board president Henry Jones said publicly the system had lost potential PE managers over press leaks like that one, as Buyouts reported.
Former Board member J.J. Jelincic, who recently lost an election to replace Jones on the board, said it makes sense to look for candidates at larger firms who may have reached a plateau in their careers. “I think that’s probably a reasonable hole to fish in,” Jelincic told Buyouts. “People who think they are going to make it to the top of whatever firm they’re in are probably not interested in bailing out.”
Meng told Reuters the two funds would exist a “double arms-length away from CalPERS.” He said he was in no hurry to get them up and running and the whole process is “experimental by nature.”
“There are no specific timelines for this experiment and there is no specific outcome. . . . When we are ready, we are ready,” he said. “We’ll adjust our approach as we learn and that’s the nature of an experiment.”
The next CalPERS board meeting is scheduled for Nov. 18-20.
Action Item: Listen to Meng’s full interview here.