Calpers Taps Canadian for Chief Investment Officer – The Wall Street Journal

For most of her career, Ms. Musicco has managed Canadian pension plan assets. But currently, she is a partner at New York-based RedBird Capital Partners Management, leading the growth-equity investment firm’s Toronto office.

Calpers doesn’t invest with RedBird, a spokesman for the pension system said.

Ms. Musicco was offered the job after an almost 18-month search by the Calpers Board of Administration, which ultimately approved a compensation plan that enables the CIO to earn as much as $2.8 million if the pension’s performance hits certain milestones.

Board members also sought someone ready to make a long-term commitment, according to

Marcie Frost,
Calpers’s chief executive.

It was important that the new CIO “understood the necessity and be willing and able to work with us for a minimum of five years,” Ms. Frost said. Some financial incentives in the contract offered to Ms. Musicco only kick in after five years.

Managing hundreds of billions in investments carries prestige within the industry but also comes with multifaceted pressures, and Calpers has struggled to retain previous incumbents. The pension has had six chief investment officers over the past two decades.

According to Ms. Frost, Calpers sought someone who could work successfully in the “very public role” of CIO and who demonstrated the ability to understand the needs of the system’s various stakeholders, including public officials, state workers, retirees, unions, taxpayers and often-divided board members.

The CIO also must navigate the complexity of the Calpers portfolio, which targets actuarial returns of 6.8% per year, and effectively lead a large investment team of almost 350 professionals. The pension invests in public equities and bonds as well as hundreds of private-equity and venture-capital funds, hedge funds and real-estate funds.

Ms. Musicco checked all the boxes, Ms. Frost said.

Before RedBird, Ms. Musicco managed public pension assets in Ontario, most recently spending nearly two years helping the Investment Management Corporation of Ontario set up a direct-investing program for private markets. Earlier, she worked for the Ontario Teachers’ Pension Plan for almost 17 years, leading private-equity and public-equity teams, opening a Hong Kong office and helping to build its Asia investment operations.

Ms. Musicco joins Calpers as it invests more in private markets to help close a gap between projected assets and promised benefits to more than two million members of its retirement plans. Over the past five years, the system’s ratio of assets to liabilities has risen to 80% from 60%.

Calpers adopted an investment allocation mix last year that would increase its bets on private equity to 13% of its total invested assets from 8% at that time. The changes also allocate 5% to private-debt strategies and call for leveraging its portfolio by borrowing against its assets to improve returns.

Ms. Musicco said she is ready for the investment challenge and backed the move to borrow.

“It was important, bold, brave—however you want to put it—for the board and the team to come forward with that decision,” Ms. Musicco said about adding leverage. She said borrowing has become a common way for pensions “to hit their return thresholds.”

“Calpers was well on its way with oversight and really understanding liquidity and risk tolerances,” Ms. Musicco said about the strategic shift to take on debt.

Ms. Musicco said initially she will focus on identifying any talent gaps in the staff and determining where resources may need to be redeployed and whether Calpers should invest even more in higher-return-generating, albeit riskier, assets like private equity. She also plans to explore making more commitments to infrastructure and real estate.

The private-markets teams at Calpers have established strategic partnerships with some of the best fund managers globally, Ms. Musicco said. That presents an opportunity to “lean into a few strategic relationships” to make more direct investments in private assets.

“Not only does it help to bring down costs, it also builds that internal skill set,” said Ms. Musicco.

Ms. Musicco would report her share of profits—known as carried interest—in some RedBird funds in a public document as required by California law when she assumes the role, the pension system’s spokesman said.

It took nearly 10 years for the Ontario Teachers’ system to build a “truly global world-class direct-investing program,” Ms. Musicco said. “So you have to think about it as a marathon, not a sprint, when you’re thinking of building direct-investing programs.”

Write to Preeti Singh at preeti.singh@wsj.com