Investor Profile

CalPERS’ leadership trio on culture, mission and responsibility

CalPERS stands out among its global peers with three women leading the organisation as chair, CEO and CIO. Amanda White spent time (on zoom) with the group to find out what drives the leadership team and how collaboration and a shared mission are creating an innovative investment culture.

Marcie Frost, Nicole Musicco and Theresa Taylor are well aware of their responsibilities as the CEO, CIO and chair of America’s largest pension fund, the $443 billion CalPERS. Not only are they leaders of an organisation responsible for two million members, but they are an important exemplar for younger women looking at their career aspirations.

“We are representative of our two million Californian members, who are a lively and diverse group,” says Frost. “When people can see themselves represented, we build trust.”

It’s more of an accidental outcome that three women lead CalPERS, rather than any pre-ordained objective. Instead alignment of interest, shared values, and team work were a focus in hiring, with an understanding that women are under-represented.

Frost says when hiring for the CIO position conventional skills – such as managing a complex portfolio and different types of risks – were assessed but there was equally a focus on an ability to be collaborative, a focus on developing a world-class team and an alignment of values.

“Inter-personal relationships drive success in a large organisation,” says Musicco who was appointed the fund’s CIO in February 2022. “The relationship with Theresa and Marcie is important for leading, we all truly value diversity. Some of the initiatives we put in place when I first arrived included putting assets behind some of these ideas with a diversity lens. Decision making is positively impacted by the inter-personal relationship and aligned values we have.”

According to research conducting by as part of its Asset Owner Directory only 12 per cent of the 350 largest funds in the world have women in any of the CEO, chair or CIO positions.

CalPERS stands out among that cohort as a very large, sophisticated organisation with women in all of the three roles at the top of the leadership hierarchy. Only two other funds, Australia’s HESTA and Teachers retirement System of the City of New York, have a woman in all three positions.

“We are in a unique position relative to our peers around the world. There was no intention to put three women in those senior positions, but having it as an outcome has been a great experience,” says Frost who as CEO oversees an operating budget of more than $2 billion.

“If there is one thing to come from it, it’s younger worker and mid-career women employees seeing three women running the organisation as an opportunity to see themselves in those positions. And it is an opportunity for us to make sure we are clear on the pathway to do that. How did I move from being a typist to a CEO? The value comes in the story telling, showing where we started to where we are today.”

“We are partners in the mission and the purpose of the organisation, there is a lot of energy in that.”

The focus on diversity at CalPERS is evident among its 2,843 employees, which includes 18 race and ethnicity groups, five generations, 26 languages and a gender split of 56.9% female to 43.1% male (amongst executives that split reverses and is one third female, to two thirds male).

Over the past two decades the fund has been refining its DEI practices and in 2021 introduced a specific framework outlining how it would integrate DEI into the organisation. This included the five priority areas of culture, talent management, health equity, supplier diversity and investments.

“Great progress is being made, DEI has become part of the culture and that is not a stagnant thing,” Frost says. Some of the more practical applications have been technology to remove bias in recruitment, leadership training to avoid unconscious bias, an access initiative in consultant procurement, the appointment of chief DEI officer Marlene Timberlake D’Adamo and a twice-yearly update to the board.

“One of the board’s strategic policies is to internally and externally improve DEI with those we work with and our vendors, and making sure that it is throughout our portfolios,” says chair Taylor. “With the hire of Nicole and the leadership’s shared values we are now looking at investing appropriately to highlight DEI.”

The fund spends a lot of time investing in its own leaders in what Frost calls a supportive leader model where humility is encouraged. “We are not trying to hire like-minded people, we want to have complimentary skill sets and creative chaos and that takes a lot to lead,” Frost says. “Finding leaders that understand humility is an important part of the role, we are here to serve the organisation not the other way around.”

Values manifest in the investment team

Through its investments CalPERS has a mosaic platform where it can put capital in the hands of diverse managers, influence change in the industry and promote diverse leaders.

“In our own hiring practices it’s on us to make sure we are at least shaking the tree to bring forward diverse candidates and go the extra mile to look through a different lens,” Musicco says. “Some of the things we have historically looked for have been biased and not geared towards people who have had to step out of the workforce for example. We need to be in front of that as senior women and make sure that conversation is happening.”

And the team is also spending more time leveraging its partner relationships to help operationalise the attraction of diverse talent.

CalPERS has been investing in emerging and diverse managers for 25 years. More recently it allocated $1 billion equally across TPG and GCM Grosvenor in strategies dedicated to investing in diverse alternative managers.

“People bring different biases and experiences in their own lives to the diligence table. We understand there is more than just coming to the table with a solid track record, it’s table stakes to show up with that, but I want to understand the personal drive piece and the benefits of diversity of thought,” Musicco says. “I want to understand people’s appreciation for collaboration and how flexible they will be.”

As organisations around the world have grappled with what the new normal working conditions look like, the three women at the top of CalPERS have been progressive with their approach acknowledging the benefits of flexibility.

“As women we have valued flexibility, women are usually wearing multiple hats and so we have seen the benefit of flexibility,” Musicco says. “This is an apprenticising business and we need time in the office but we also see value in flexibility and the value of getting women into investments. The hybrid working environment is an important part of CalPERS and fits the investment model.”

As CEO Frost says developing the hybrid model was one of the hardest decisions to implement well.

“We are a team oriented environment but a part of our jobs is more productive to do individually. We need to make sure the adults in the room will be making decisions that will stand the test of time,” Frost says. “We are one year in to hybrid work model with a 60:40 office split and have been investing in leaders to manage remote teams and lead in a different environment. Leaders do two things: there’s the accountability piece and we have done a lot of work on performance measurement – that is not time watching but outcomes based – and then there’s leadership around support and flexibility and having employees feel comfortable and supported.”

Diversity in investments – 2030

As the fund sets its 2030 goal and strategic direction Musicco is focused on team culture. “We need to build trust and bring people along, we value flexibility and diversity in what we are trying to achieve,” she says. “Most investment teams have not experienced the type of environment we have today and being able to step back and be more malleable in your thinking, and not have to know everything, is valuable.”

“The relationship that exists between the three of us makes for a special place to be right now.”

Part of the team culture also includes individual opportunities and Mussico wants all employees to be able to “lean in, put their hand up and carve out their own opportunity”.

“In a large organisation with long-tenured employees we are working hard to get a proactive culture. As women coming up through our own careers we know that waiting for jobs doesn’t happen,” she says.

Liquidity management and risk management are top of mind as the fund allocates into private markets in a more meaningful way.

“We are making sure we are leaning into private markets in a bigger, more thoughtful, cost-effective way, such as more direct investing,” Musicco says.

Part of that strategy includes more global diversity of investments and looking at where the dislocation is happening.

“It is easy to have a North American lens but we are trying to bring in more global exposure over time. Business structures will be turned upside down and it is an interesting time for us to have dry powder.”

Trust and a shared mission

For Musicco to be successful as the fund’s CIO and implement a lofty strategy, especially in private markets, it is imperative there is genuine trust with the CEO.

“I need to have unwavering trust with Marcie so she can be supportive of my big ideas, be willing to listen and give me resources. We have an open channel of communication. It is such a unique opportunity to have three women so aligned in our values and the mission implemented in a world class way,” she says. “The trust element is the most important thread, the relationship that exists between the three of us makes for a special place to be right now.”

From the board’s perspective trust is imperative. In a tough investing environment Taylor says the board is aware that investments like private equity cannot be ignored if the fund is going to achieve its targets.

“We have a history we can look at and see the impact of that,” she says. “We need to have trust. We are all aware we need to be supportive of what our investment office is doing, and as a board we are there to make sure the checks and balances are in place. It’s about collaboration and trust.”

For Frost the trust and focus comes from the aligned mission to pay benefits to the people who have dedicated themselves to working for the state of California. The fund pays out about $20 billion a year to retirees, which has an estimated impact of $28 billion in statewide economic activity.

“We are all very purpose driven, and genuinely like each other. We are partners in the mission and the purpose of the organisation. There is a lot of energy in that.”

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