CalPERS and the public-pension private-equity brain drain

  • Desrochers leaves for large overseas bank
  • Staffers flee low pay at New Jersey pension
  • Median GP salaries nearly equal CIO pay at CalPERS

Public-pension officials leave for private-sector gigs all the time, but Réal Desrochers’s departure from CalPERS casts a wider shadow than most.

The combative, press-shy chief of California Public Employees’ Retirement System’s private equity team left for a position at a “large overseas bank” after six years with the $315 billion public pension system. His last day was April 7.

Although the specifics of his new job remain unknown, it’s safe to assume that an investment professional with his pedigree could earn more money in the private sector than at a public pension, even one as large as CalPERS.

CalPERS lost 21 investment professionals from 2010 to 2015, according to a compensation study produced for the pension system. More than 85 percent of those left for positions in the private sector.

The CalPERS PE chief made around $500,000 last year, according to a database maintained by the Sacramento Bee. Desrochers’s boss, CalPERS CIO Ted Eliopoulos, was California’s highest-paid public employee at $768,000 last year.

Eliopoulos’s annual payout was a hair above the median base salary for managing partners at leveraged buyout or growth equity shops, currently pegged at around $750,000, according to Buyouts Insider’s PE/VC Compensation Report. Of course, managing partners at PE firms also make money from the carried interest their funds generate, to say nothing of annual bonuses that can easily surpass $1 million.

Bonuses at public pensions are less frequent, and rarely as lucrative. Carried interest or incentive compensation, even less so. CalPERS’s peer institution, the $202 billion California State Teachers’ Retirement System, is weighing changes to its private equity benchmark, which could make it easier for its investment staff to receive bonuses.

A study from consultant Meketa Investment Group determined CalSTRS’s PE team would not have been eligible for a performance-related bonus between 2009 and 2014 under its current compensation scheme. In the 2013-2014 fiscal year, CalSTRS staff received no performance-based bonus compensation despite notching a 19.6 percent return.

Public pensions face challenges in retaining high-level talent. These are even starker at smaller public pensions, particularly those facing funding challenges. New Jersey Division of Investment lost three members of its alternative investments team to higher-paying positions at endowments in the past year.

And Desrochers was doing considerably better than his peers in New Jersey, from a compensation standpoint. At $500K, Desrochers was making a little less than five times what New Jersey’s former head of alternatives took home.

“This staff deserved to be paid a competitive rate for the work that they do, and it’s not even competitive,” New Jersey State Investment Council Member Guy Haselmann said at a the meeting last month. Other council members lamented the division’s inability to retain staff with below-market compensation.

If Desrochers’s departure from CalPERS provides any indication, even “competitive” might not be enough.