State Pension Fund Chief Resigns From Post
Sixteen months after taking the job, the chief investment officer for the state’s $150-billion pension fund abruptly resigned Tuesday, saying Controller Kathleen Connell’s efforts to stop top-level salary increases had undercut his effectiveness.
Daniel Szente said his decision to cut short his tenure at the California Public Employees Retirement System, or CALPERS, was prompted in part by an ongoing legal battle between Connell and a majority of the governing board over the salaries for in-house investment managers.
Last year, Connell, who has frequently feuded with her fellow CALPERS board members, refused to issue paychecks that included a 10% raise the board majority granted to investment managers. When the board attempted to go around her by issuing the checks through a separate payroll system, she sued.
Szente’s resignation followed a ruling against the board by a Sacramento Superior Court judge, who held that it had no authority to set up the separate payroll system. CALPERS appealed the ruling Tuesday.
“The board’s built a heck of a staff and I have concerns that the staff will hold together,” Szente said in an interview. “The controller’s lawsuit. . . . will put them into stall going forward, [and] I’m not interested quite frankly at this point in being in a situation that is going sideways.”
He said although the court action did not cause him to look for another job, it did make him open to overtures from San Francisco-based McMorgan & Co., whose offer of higher pay and opportunities for advancement he has accepted.
“I’m not sure initially I would have returned their calls, but I’m glad . . . . I did,” he said. “McMorgan made me a heck of an offer, [and] the exciting opportunities shown me were too good to pass up.”
Szente had encouraged the board’s attempt to raise salary levels for investment managers, whose annual pay ranged from $88,000 to $105,000. The move came after outside consultants advised CALPERS that it needed to pay more to attract--and keep--highly skilled investment professionals to oversee specialized portfolios such as hedge funds.
He said his disappointment over the controller’s action was not rooted in any personal concerns. His own pay package--$400,000 last year including salary and bonus--was not affected by the lawsuit.
“With the controller’s lawsuit, I can certainly understand it if some investment managers feel they may not want to stay, but I hope they will,” board member Charles Valdes said shortly after Szente announced his resignation at a closed-door meeting of the CALPERS investment committee.
A lawyer for Connell said the controller was being unfairly criticized because she had filed the lawsuit only to resolve a conflict in the law. Richard Chivaro, the controller’s chief legal counsel, said one law requires CALPERS to get approval for salary increases from the Department of Personnel Administration, while a new constitutional amendment, Proposition 162, gives it autonomy to handle its administrative affairs.
“It seems the controller is being made the bad person because she is trying to get a determination as to which law applies here,” he said. “All we’re seeking is judicial clarification. If the court comes down and says we can pay, then we don’t care; we will pay.”
Chivaro said the Davis administration had refused to approve the pay increases for CALPERS as well as one for the chief executive of its sister pension fund, the State Teachers’ Retirement System. In a letter to that group, Personnel Administration Director Marty Morgenstern cited an executive order from Gov. Gray Davis calling for salary freezes “given the state’s current financial difficulties.”
Szente’s resignation comes as investment performance at CALPERS is the lowest in 17 years, and board members said they were surprised and disappointed by his departure. Chivaro said Connell thought he was “doing a good job,” although he noted that the teachers fund had outperformed CALPERS in the last few years.
Several board members said they were worried that some of their investment managers would now leave, forcing the board to use more expensive outside management firms to replace them.
“The uncertain environment caused by the lawsuit could result in more losses of specialized investment staff, forcing us to adopt less sophisticated programs with the ultimate loss of returns,” said board President William D. Crist.
CALPERS, the nation’s largest public pension fund, provides retirement and health benefits to 1.2 million public employees and their families. Szente, 54, replaced Sheryl Pressler as chief investment officer in July 2000.
