Eighteen months to fix a lost decade

Much of the industry buzz this week has been on CalPERS (not an unusual topic of conversation in private equity land).

Why did CIO Nicole Musicco step down after only 18 months, right in the middle of executing major expansions of the system’s private markets strategy? What’s the dirt? We’ve heard the question from all corners and no one seems to have a solid answer.

The official explanation is that Musicco wants to spend more time with family, having spent months flying between Toronto and Sacramento.

As many of us sit and try and guess the state of play in California, the big question lingering is about the future of PE at the nation’s largest pension system.

Musicco was an unapologetic booster of private equity as an investment strategy. She will be remembered as highlighting why the system lost billions of dollars by not investing enough in private equity over what she called a “lost decade.”

She also started pushing the system to explore sports investing, and use its resources and strong position to push into private lending at a time when regional banks were failing.

These were bold, forward-looking plans that perhaps ran up against what many of her predecessors discovered at CalPERS – an institutional fear of bad optics.

Bloomberg published an article this week exploring Musicco’s reported efforts to move the system into sports investing, something she picked up from working at her prior firm RedBird Capital.

According to Bloomberg, these ideas were not well-received by some staffers, especially her sports investing push.

RedBird Capital is a huge force in PE’s entrance into the sports world. Bringing that idea to a pension system with so many beneficiaries and external stakeholders was bound to run into problems.

It also created bad optics, especially as Musicco was seen near prominent NBA owners – and possible business partners – while attending a playoff basketball game.

Fair or not, optics is everything at a political arena like CalPERS.

This week, board members for the San Diego County pension system discussed the Bloomberg article, asking investment staff and consultants if this type of coziness is inherent in private equity. This could stay in the back of board members’ minds if they’re asked to increase the system’s target allocation to the asset class at some point in the future.

Either way, Musicco spent much of her almost 18 months trying to change course from a lost decade. Her departure sent shockwaves throughout the industry. But her actions may continue to send ripples through the private equity industry for some time to come.

What do you think about the job Nicole Musicco did at CalPERS? I’d love to hear your thoughts on this. Or, well, really anything related to private equity. Hit me up at Gregg.g@pei.group or on LinkedIn.