/CalPERS Digs Its Ben Meng Defenestration Hole Deeper: Claims Knowledge of Abuse Months Ago; Notice for Emergency Closed Session Legally Invalid Unless CEO Frost’s Job Is on the Line

CalPERS Digs Its Ben Meng Defenestration Hole Deeper: Claims Knowledge of Abuse Months Ago; Notice for Emergency Closed Session Legally Invalid Unless CEO Frost’s Job Is on the Line

CalPERS looks more and more like the gang that can’t shoot straight. CalPERS’ PR department is flogging a new Bloomberg story about the unseemly departure of Chief Investment Officer Ben Meng , which means the pension fund planted it and is pleased with it. In fact, as one prominent beneficiary said, “It’s ironic that they prefer this terrible narrative over various other terrible narratives that are probably closer to the truth.”

If you are late to this story, Dan Primack of Axois provided this summary:

When Ben Meng suddenly resigned as chief investment officer of CalPERS, America’s largest public pension system, the press release quoted Meng as saying “it’s important for me to focus on my health and on my family.”

  • Now, though, CalPERS officials are slowly acknowledging what seemed obvious: Meng’s decision was likely influenced by blogger Susan Webber’s  discovery  that Meng had filed inaccurate conflict-of-interest disclosures, including a failure to note personal investments in private equity firms that regularly seek business from CalPERS.
  • Betty Yee, California’s state controller and a CalPERS director, told the Sac Bee that she was disappointed by a “lapse in both judgment and adherence to standard conflict-of-interest policies.”

An earlier Bloomberg account included that Yee had called for an emergency board meeting,now set for Monday August 17. The way CalPERS’legal department noticed the meeting is yet another criminal violation of the Bagley-Keene Open Meeting Act, if the board simply intends to talk more about Meng or the meeting is to discuss a possible disciplining or even termination of CEO Marcie Frost.

CalPERS’ Spin Misfires

Given how often CalPERS is in reputational hot water, you’d think by know it would know how to put the best face on a bad situation. Instead, if you take CalPERS’ messaging hash at face value, it confirms our criticism of CalPERS’ weak compliance function and poor controls.

CalPERS via Bloomberg tries to depict Meng as sympathetic, when readers who have worked with him give quite a different picture (see here and here) and CalPERS as fully aware for months that Meng had violated California conflict of interest laws. Specifically, per Bloomberg:

…in April, a compliance team uncovered at least one conflict-of-interest violation, it set in motion a chain of events that threatened to spark a firestorm of criticism and thrust him into the center of even more hostility.

And the subhead for the story includes: “CIO approved investment in Blackstone fund while owning shares.”

This is a massive misdirection.

CalPERS knew, and chose to ignore, that Meng had a conflict of interest problem in January 2019, not April 2020. Meng filed his initial financial disclosure form on January 31, 2019, which was as of his assuming office date, January 2, 2019. That forms showed three private-equity related positions: Blackstone, Carlyle, and a credit fund run by Ares.

CalPERS’ strategy for many years had been to make large commitments to private equity funds so as to pay lower fees.1 That has had the effect, as CalPERS own private equity consultant has pointed out, of concentrating CalPERS investments in the “buyout” strategy which is tantamount to saying CalPERS mainly invests with the really big private equity fund managers. Blackstone and Carlyle both are among the four biggest private equity firms. CalPERS has also for years been stressing that private equity is central to meeting its 7% return target. It was inevitable that Meng would wind up overseeing commitments to Blackstone and Carlyle and thus violate California’s conflict of interest laws.2

CalPERS should have told Meng to dispose of his private equity stakes as soon as it received his financial disclosure forms. There was simply no way for CalPERS to continue with its private equity love affair and not have it blow up Meng. As the Bloomberg article suggests, Meng should have been alert enough to work that out.

Meng violated conflict of interest laws in 2019, not 2020, and with Carlyle, not Blackrock. CalPERS via Bloomberg misleadingly tries to suggest, but in 2019, with $328 million commitment to a Carlyle European fund, Carlyle Europe Partners V.3

CalPERS’ claim it knew Meng had a problem in April means it engaged in a cover-up for months. As we described above, CalPERS had already known Meng had private equity stakes. Even before Meng filed his Form 700 in April, which by the way was nearly a month late, CalPERS should have known Meng had not sold his Blackstone and Carlyle positions because Meng is also required to clear all of his personal trading with CalPERS. In other words, CalPERS knew or was horribly remiss if it did not know that Meng had not disposed of his private equity stakes.

So even if we believe this bizarre account, what could have triggered the complacent and complicit CalPERS to rouse a bit from its stupor?

As we indicated, the Form 700 filing contained no new information with respect to Meng holding Blackstone and Carlyle. Was it that the Investment Office, under its way too generous “delegated authority,” had committed $1 billion to a Blackstone fund in March? Or could it have been that someone in Compliance was alert enough to notice a new entry, that Meng had a new “teaching contract” for Schwarzman College at Tsinghua University, and that Schwarzman was the long-standing CEO of Blackstone?4

The only explanation that fits the CalPERS spin is that CalPERS had a look in April and decided to do nothing. Four months is more than enough time for CalPERS to have acted if they intended to get in front of this problem. Instead, our contacts say CalPERS hired a lawyer for Meng less than two weeks before he departed.5 That is consistent with our Public Records Act requests having stirred the pot. On June 8, we noticed that CalPERS had not put up any Forms 700 for calendar 2019 and requested them from 2016 to present for all board members plus a long list of named executives including Meng. On July 27, we put in another Public Records Act request:

Please provide any materials or writings related to actual or potential recusals by Chief Investment Officer Ben Meng.

In other words, to the extent CalPERS really did wake up to the fact that Meng had a problem in April, its executives apparently concluded that the violation would be policed by the toothless Fair Political Practices Commission and they had nothing to worry about.

Another Criminal Violation of Open Meeting Laws, or Is Frost in Serious Trouble?

Recall that the default for a California public agency like CalPERS is that information is public, and that board decision-making is to take place in public meetings so as to allow affected constituents the opportunity to provide input before a decision is made. This right is enshrined in Article 1 of the California Constitution:

SEC. 3. (a) The people have the right to instruct their representatives, petition government for redress of grievances, and assemble freely to consult for the common good.

(b) (1) The people have the right of access to information concerning the conduct of the people’s business, and, therefore, the meetings of public bodies and the writings of public officials and agencies shall be open to public scrutiny.

(2) A statute, court rule, or other authority, including those in effect on the effective date of this subdivision, shall be broadly construed if it furthers the people’s right of access, and narrowly construed if it limits the right of access. A statute, court rule, or other authority adopted after the effective date of this subdivision that limits the right of access shall be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

Nevertheless, legitimate personnel matters are exempt from public disclosure. But not surprisingly, CalPERS has taken to overstretching the personnel exemption in order to hide embarrassing topics from its constituencies. It’s pretty rich to see Frost tell flagrant like this to the board….

A Bloomberg reporter is writing another story today and I wanted you to know that I made the following written statement regarding specific questions he asked. Once the story is online, I’ll forward you the link.

“When it comes to personnel matters, we follow California state law and always protect privacy and due process and the rights of the individual. And, we’ll always stay true to our mission. Every day, we focus on the 2 million people who are counting on us to provide them with financial security in their retirement.”

….when the Bloomberg piece describes a meeting between only between Frost and Meng. And you can be sure Meng was gagged as part of his departure. So somehow Frost is protecting privacy and played coy with Bloomberg when she conveyed information only she could have known about Meng through her minions.

In other words, what is considered to be private at CalPERS depends on what serves Frost’s needs, not anyone else.

Here is how CalPERS has justified its closed session for August 17:

Because Meng is no longer an employee, he is not entitled to the personnel exemption in Section (a)(1). And given how much CalPERS babbled on Meng’s behalf to Bloomberg, it’s clear they don’t take his privacy seriously.

Section (e) covers pending litigation and the matter has to be ripe for this section to apply. So, is CalPERS thinking of suing Meng? Doubtful, given how they just painted him as a victim in Bloomberg, plus litigation would result in more embarrassment, which is the last thing CalPERS wants. In other words, this is another legal overreach by General Counsel Matt Jacobs.

For Section (g) to apply, CalPERS arguably could be discussing the hiring of a new Chief Investment Officer, but it is highly unlikely given that Yee called this session and wants to do a post mortem plus it is inconceivable that staff could be far enough along on the recruitment of a replacement to have anything to tell the board. Thus, this section is not invoked legitimately unless discussion is expected to include a discipline or termination of CEO Marcie Frost, which seems unlikely give that the agenda item calls for a CEO briefing. Here’s the text of Section (g):

(g) This article does not prevent either of the following:

(1) The Teachers’ Retirement Board or the Board of Administration of the Public Employees’ Retirement System from holding closed sessions when considering matters pertaining to the recruitment, appointment, employment, or removal of the chief executive officer or when considering matters pertaining to the recruitment or removal of the Chief Investment Officer of the State Teachers’ Retirement System or the Public Employees’ Retirement System.

Frost has six staunch cronies on the board and they would argue it would be too disruptive for her to go on the heels of Meng’s ouster unless another shoe were to drop between now and the board meeting.

As for Meng, our reader vlade explained via e-mail why his departure was good for CalPERS:

Most people on the trading desks trade (on their account). But most of them stop when they get to MD level or higher, it’s just too problematic in too many way. If Meng could not stop trading as a CIO, he’s not good enough for the role.


1 The large private equity funds provided for tiered pricing, with larger commitments getting fee breaks.

2 From the California Government Code; this section is known as the “Political Reform Act” and is enforced by the Fair Political Practices Commission:

87100. No public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know he has a financial interest.

87103. A public official has a financial interest in a decision within the meaning of Section 87100 if it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the official, a member of his or her immediate family, or on any of the following:

(a) Any business entity in which the public official has a direct or indirect investment worth two thousand dollars ($2,000) or more.

(b) Any real property in which the public official has a direct or indirect interest worth two thousand dollars ($2,000) or more.

(c) Any source of income, except gifts or loans by a commercial lending institution made in the regular course of business on terms available to the public without regard to official status, aggregating five hundred dollars ($500) or more in value provided or promised to, received by, the public official within 12 months prior to the time when the decision is made.

(d) Any business entity in which the public official is a director, officer, partner, trustee, employee, or holds any position of management.

(e) Any donor of, or any intermediary or agent for a donor of, a gift or gifts aggregating two hundred fifty dollars ($250) or more in value provided to, received by, or promised to the public official within 12 months prior to the time when the decision is made. The amount of the value of gifts specified by this subdivision shall be adjusted biennially by the commission to equal the same amount determined by the commission pursuant to subdivision (f) of Section 89503.

For purposes of this section, indirect investment or interest means any investment or interest owned by the spouse or dependent child of a public official, by an agent on behalf of a public official, or by a business entity or trust in which the official, the official’s agents, spouse, and dependent children own directly, indirectly, or beneficially a 10-percent interest or greater.

3 The Carlyle fund closed in late October 2019, which means it is inconceivable that the fund was approved before Meng joined, not simply based on the time but also based on the lack of adult supervision in private equity before Meng joined. Former Chief Investment Officer Ted Eliopoulos announced his plan to leave CalPERS in May 2018 and left in November 2018. CalPERS had had no head of private equity for well over a year as of when Eliopoulos departed. CalPERS did not announce the hiring of a new Managing Investment for private equity until May 2019.

4 A colleague dismissed the notion that this gig amounted to fee for bona fide services: “After watching Meng’s charade with David Petraeus, it’s pretty clear that these ‘talks’ are content-free.”

5 Needless to say, no one outside the CalPERS bubble buys the health pretext. Staff at CalPERS confirm that there was no indication that the 51 year old Meng had any physical ailment. And for anything short of the sudden onset of a debilitating condition, a senior executive in good standing would give notice.

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