CalPERS has not covered itself with glory in how it handled oversight of its former Chief Investment Officer Ben Meng, both while he was in office and during his ugly exit. As we’ll discuss, even the brief visible portion of the Monday emergency board meeting triggered by Meng’s departure showed Board President Henry Jones’ ham-fisted railroading of fellow board member questions.1 Based on that snippet, as well as long-visible bad habits, it is reasonable to assume that staff’s disclosure to the board over l’affaire Meng, even in closed session, was minimal.
That means that CalPERS’ staff is implicating itself in Meng’s questionable conduct by proceeding with transactions that were tainted by his conflicts of interest. We know of at least one: a $500 million investment in a Carlyle vehicle that was initiated on Meng’s watch and is still in the pipeline. At a minimum, the board should have been informed about this thorny issue and how CalPERS intends to handle it.
We asked CalPERS to comment on what it planned to do about pending transactions started under Meng’s supervision with the fund managers in which Meng held stakes (Blackstone, Carlyle, and an Ares credit fund). We received no response.
CalPERS has further damaged its flagging credibility via its poor responses and inept messaging. The big bomb was Meng’s resignation with immediate effect. No one with large organization experience buys CalPERS’ and Meng’s implausible spin that Meng left suddenly for health reasons. Employees in good standing don’t depart that way; they give notice. CEO Marcie Frost, who had been Human Resource Director during her tenure at Washington Retirement Systems, should have known full well the signal she was sending by having Meng resign on the spot, that Meng was badly damaged goods.2 But there were plenty of other screw-ups. A partial list:
Pretending CalPERS didn’t know Meng had private equity conflicts of interest until April 2020 when Meng disclosed those holdings in January 2019 and CalPERS should have had Meng’s trading records and known he had not sold them
Not encouraging Meng to amend his Form 700 filing in April 2020 when which would have lessened the damage, especially since CalPERS did not post the From 700 until mid-June. An amended From 700 would have been an acknowledgement of Meng’s error and looked much less like a cover-up
First taking the posture that Meng’s conduct was a personnel matter, then aggressively hawking the “poor Ben” account with personal details. As one beneficiary said, “So much for Ben’s privacy but it did protect the privacy of others engaged in an apparent cover-up.”
Lying to the press by trying to pretend that the Fair Political Practices complaint filed the day after our story broke came from CalPERS. The document shows it was an anonymous and bare-bones filing. A second Fair Political Practices complaint similarly looks to have come from the public; it referenced a Financial Times story which credited Naked Capitalism as the source
What little the public saw of the emergency board meeting yesterday suggested it was part of a contiuing cover-up. We’ve embedded the rush transcript generated by WebEx at the end of this post.
While still in open session, Margaret Brown asked when the public would be allowed to comment, which was a reasonable surmise since the meeting notice provided a call-in number. General Counsel Matt Jacobs cited a section of the Government Code that allowed the board to skip comments because it was a closed session, ignoring that they were in the midst of an open session. Brown cited two other sections of the Government Code which she argued pointed to a different conclusion.3 It was obvious that Jacobs didn’t consult the sections in question to make sure he hadn’t missed anything, and Jones cut Brown off.
Controller Betty Yee then asked when there would be a board meeting to address the issues that she’d repeatedly asked to be addressed (both in letters to Jones and in the press) about the adequacy of CalPERS’ conflict of interest policies and the CEO’s oversight.4 Yee pointed out that the meeting as noticed didn’t address her issues. Jones then took the remarkable position that discussing the scheduling of matters that clearly belonged in open session be conducted in closed session. In other words, Jones on the record stated that he planned to have the board immediately engage in a flagrant Bagley-Keene Open Meeting Act violation.
That probable Bagley-Keene violation comes in addition to CalPERS making statements that amounted to an admission that the emergency closed session was unlawful.
At a public meeting the Thursday before the emergency board session, Deputy Executive Officer Brad Pacheco said the board would only discuss Meng’s departure. Pacheco’s statement shows a willful intent to deprive the public of information which it is legally entitled. Meng resigned with immediate effect 12 days before the August 17 meeting. He was no longer a public employee. The personnel exemption is designed to protect the privacy of employees, not employers.
As a fiduciary, Jones has a duty of inquiry into matters that affect the performance and reputation of the fund. A sound fiduciary should welcome open and public examination of these issues, and only enter closed session if the investigation merits litigation or the discipline of an employee. As one California lawyer opined, “Jones’ misconduct is outrageous.”
Jones then shut Yee down. He also set the trap that if Yee discussed those issues in closed session, any public discussion the issues would be a breach of closed session. It is unknown if Yee’s concerns were in fact discussed. However, Frost’s post-meeting announcement that “At next month’s meeting, we will bring to the board specific policy options for their considerations.” certainly suggests they were.5
As many observers, including members of the press, told me, that if CalPERS conducted this meeting in secret and did not announce that Marcie Frost was being put on administrative leave while an independent investigation was being launched, then it was obvious that a cover-up was underway.
That begs the question of what additional CalPERS’ dirty laundry is attempting to block from being exposed. We have the pending Carlyle transaction. What else is lurking?
1 The board set themselves up for that by adopting Rosenberg’s Rules of Order, in place of Robert’s Rules of Order. Rosenberg’s Rules gives a great deal of power to the chair.
2 It is remotely possible that Meng thought he was burning CalPERS, but if so, this would be yet another of his many poor calls. The immediate departure wrecked any re-employment opportunities. By contrast, if he’d left with notice, he could easily have presented himself as victim of The Mess CalPERS Has Become and would have gotten a sympathetic hearing in many quarters.
3 This is not a cut and dried matter. One can argue that even the brief open session preliminary to the closed session was ripe for comment. In addition, as discussed in the post, CalPERS’ PR chief Brad Pacheco had told stakeholders that the closed session was to discuss the apparent Meng defenestration. That means the session was improperly noticed (Meng as an ex employee is not entitled to personnel protections) unless Meng has threatened litigation (the provision to allow discussion of pending litigation in closed session is narrow and is limited to actual pending litigation, not theoretically possible litigation).
I am incredibly disappointed to hear about the former CIO’s lapse in both judgment and adherence to standard conflict-of-interest policies. I have called for an emergency board meeting to discuss this situation, review these policies, the CEO’s oversight and implementation of these policies, and any additional safeguards necessary to ensure this does not happen again.
5 It is possible that the staff merely gave the board a pat on the head and told them the staff would deign to consider Yee’s issues next month, with the further slap that it would be part of a regular meeting, and not addressed on an urgent basis as Yee had insisted.