CalPERS Taps CFO To Guard Against Risks

Pension: California Public Employees Retirement System

Assets Managed: $246 Billion (Oct. 18, 2012)

Private Equity Assets Managed: $36 Billion (June 30, 2012)

Private Equity Allocation (Target): 14% (14%) (June 30, 2012)

Chief Investment Officer: Joe Dear

With the appointment of Cheryl Eason as its new chief financial officer, the $243 billion California Public Employees Retirement System has installed a final brick in its efforts to fortify the giant pension against risks such as financial crises and pay-to-play scandals.

Eason is the first person to occupy the chief financial officer role at CalPERS, a role that was created after the pension’s official review of its damaging pay-to-play scandal.

She comes to CalPERS from the British Columbia Pension Corp., one of the largest pensions in Canada. With 25 years of experience in finance and risk management experience, Eason plans to start in November. Larry Jensen, the pension’s new chief risk officer, will report to Eason, and she in turn will report to Anne Stausboll, CalPERS’s chief executive officer.

“Our CFO will be the single point of coordination for financial and risk-related activities…and Cheryl is the perfect choice to lead this important task,” Stausboll said in a statement. Her background and experience “will ensure that CalPERS maintains a high level of transparency and internal controls in its financial operations,” she added.

While Eason will most likely have a lower profile than that of CalPERS’s chief investment officer, Joe Dear, she will be will be active on a variety of fronts. Her role focuses not only on financial operations such as cash management, accounting and budgeting, but she will also be responsible for highly visible tasks like risk management, compliance and ethics.

These latter tasks have risen in importance at CalPERS, which is emerging from the twin shocks of having lost nearly $100 billion during the financial crisis and dealing with the reputational damage from its pay-to-play scandal, which ensnared both CalPERS’s former chief executive, Federico Buenrostro, and its head of alternative investments, Leon Shahinian.

Since the pay-to-play scandal, CalPERS has only rarely used placement agents. And placement agents who are employed by asset managers pitching business to CalPERS now need to register with the state as lobbyists.

Eason will also be adding her input to CalPERS’s new risk-based asset allocation model. This new model was put in place in late 2010 in the wake of the financial crisis when CalPERS’s assets turned out to be far more correlated than they had been assumed to be. As a result, those assets fell in unison during the worst days of the recent financial meltdown.

In its new risk model, CalPERS aims to allocate assets in ways that are uncorrelated, especially when its portfolio is impacted by shocks like the recent financial crisis.

CalPERS is the largest public pension in the U.S. The pension has a 14 percent allocation to private equity, which translates to $34 billion in invested private equity capital. Overall, CalPERS administers benefits for more than 1.6 million current and former California state and local employees.