Ben Meng
Source: Calpers
First, he was called a Chinese spy. Then he was accused of misleading his board. However, Ben Meng remained as chief investment officer at California’s mammoth retirement plan. What ultimately drove him to stop was not only the public pressure, it was a Wall Street sentence that every rookie in the company managed to avoid: He sent the money from the fund into investments that could benefit him personally.
Meng’s seemingly abrupt $ 400 billion layoff Wednesday California’s public service retirement system has been in the making for months, culminating in internal control, external attacks and personal fear, according to people familiar with the matter. His downfall is a wonderful development for the largest U.S. pension fund and raises questions about who would want to succeed him in a job that attracts so much unwelcome attention, not to mention a pandemic, volatile markets and the troubled American economy.
Behind the scenes, Meng was increasingly overwhelmed and complained to his boss, Chief Executive Officer Marcie Frost, that he would become a target in the political wars that were constantly raging around Calpers. When an enforcement team discovered at least one violation of interest or conflict in April, it put a chain of events in action that threatened to provoke a firestorm of criticism and support it at the center of even more hostility.
Read more: Problem at Calpers: Abrupt Exit Hits $ 400 Billion State Fund
Calpers found that Meng approved an investment in a fund managed by its own equity Blackstone Group Inc. at the same time when he owned shares of Blackstone.
Although his share was valued at less than $ 70,000, a fraction of his $ 1 million-plus payment package, any management or performance costs Calpers paid to Blackstone would, in theory, personally benefit Meng.
That kind of ethical breach is a clear no-no to almost every investment manager, and California law requires Calpers to refer it to the state of the state. Fair Political Practices Commission, which funded it last week. The FPPC declined to comment.
“When it comes to personnel matters, we follow California state law and always protect privacy and due process and the rights of the individual,” Frost said in a statement Saturday. “We will always remain true to our mission.”
Meng on Thursday said he disclosed all of his financial holdings on applied forms and declined to comment further on questions about his conduct and behavior. He said he resigned to focus on his health and his family.
Frost believed the violation was an unintentional mistake, the sly result of Meng’s focus on improving returns, according to a person familiar with her discussions and conversations. But she intended to discipline him – either by cutting his incentive payment or possibly by placing a formal letter in his file. And she told him to expect a media frenzy when the FPPC released its own investigation into his behavior, and also, with anti-China sentiment running high in the country, preparing for a fresh round of attacks on his ethnicity and renewed speculation about his misdeeds.
For Meng, who started in January 2019 as Chief Investment Officer, the real problems began in February of this year. Representative Jim Banks, an Indiana Republican, said Meng was an instrument for Beijing engaged in “non-traditional espionage” and the dropping of American money into Chinese hands. He stated that Meng would be fired, and his call for an investigation was supported by others in the party.
A naturalized U.S. citizen, Meng had returned to China in 2015 to work as a CIO deputy at the State Administration of Foreign Exchange (SAFE) after stints at Wall Street investment banks and at Calpers. Frost personally recruited him to return to the retirement plan as his CIO to succeed Ted Eliopoulos, now at Morgan Stanley. In the end, he agreed.
He was motivated, he said in an interview Thursday, by a desire to serve the state and the country that has given him so much since arriving in the U.S. for graduate school 25 years ago “with a backpack and $ 200.”
Read more: How Chinese espionage scares Calpers Top Money Man
While Calpers and several of Wall Street Meng’s top investors supported the claims, the incident, amplified by coverage on Fox News, deeply hurt him and weakened his mental and physical health, according to people close to him. Frost even traveled to Washington to urge Republicans to stop the attacks.
More unwanted publicity came in April, when it was revealed that changes that Meng made to Calpers’ portfolio in the weeks leading up to up to the Covid-19 pandemic cost the fund more than $ 1 billion in forget-me-not payments.
Meng defends his decision to end a hedging program in favor of what he called a lower cost and more scalable approach to surviving market meltdowns. And although Calpers has recovered from the losses it has suffered, Meng found himself once again in the glare of a harsh footlight.
Nassim Taleb, the options specialist and best-selling author, dismissed his defense as “extremely unrigorous.” More hurtfully, Margaret Brown, a self-described watchdog member of Calpers ‘board, said Meng had withheld information when asked about the hedges’ performance.
Read more: Calpers CIO Says his hedges are better than works Taleb’s
Around the same time, the internal pressure on Meng intensified.
Just weeks after sending Calpers through the coronavirus selloff, he stood under the microscope for possible conflicts of interest. Frost spoke to him about the review and though he was worried about the fallout when it became public. While Meng give inTed he had been wrong and accepted responsibility for his mistakes, she began to think he might be fired.
On July 15, Calpers reported its results, an event that was followed as closely on Wall Street as during the marches of power in the state capital Sacramento. While the yield of 4.7% beat Meng’s benchmark and the average pension fund was better, it fell short for Calpers’ 7% target for a second straight year.
Meng was overwhelmed. On the weekend of August 1, he met Frost twice, and shared his concerns about the evaluation of compliance. He imposed fines of $ 5,000 for each FPPC violation as well as the possibility that investigators would look beyond the Blackstone investment to broadly consider his portfolio strategy.
In June, Meng presented the Calpers board with a new plan to support more of the fund’s assets in private capital and private credit. Indirectly, however, those transactions could also benefit from Meng’s personal holdings.
Last Monday, Meng and Frost met in their Calpers headquarters on Sacramento’s Q Street, both wearing masks and standing well apart. A blog post at the weekend zeroed in on Meng’s financial revelations to the FPPC and suggested he had committed a crime by not completing it properly.
Frost explained that the coming weeks would be difficult and emotionally painful. Meng asked Calpers to come up with a PR plan in case he decided to leave.
Wednesday morning he called Frost and read her his resignation letter. Eventually, she tried not to convince him to stay.
– With the help of Romy Varghese
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