The California Public Employees' Retirement System wants to impose tighter rules that will scrutinise and ultimately dispose the investments chief's personal holdings should conflicts of interest arise.
The board of CalPERS is set to introduce additional requirements that will force future chief investment officers to sell personal investments that could potentially give rise to a conflict under the Political Reform Act.
The law states that a public official can also place such assets into a "qualified blind trust" whereby control of the trust is given to an independent trustee, who has complete discretion to buy and sell assets without the knowledge or consent of the beneficiary.
The move comes off the back of Yu (Ben) Meng resigning abruptly in August as chief investment officer amid allegations that he invested in companies that are blacklisted by the US government.
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CalPERS chief executive Marcie Frost defended Meng at the time, saying the fund invested in line with the Federal Office of Foreign Asset Control's list of prohibited companies.
Reports from also US claim Meng was personally invested in a private equity firm CalPERS has a stake in.
The board said that: "Government code 87100 clearly prohibits all public officials at any level of state or local government from making, participating in making, or in any way attempting to use their official position to influence a governmental decision in which they have a financial interest."
CalPERS is in the process of recruiting the next chief investment officer. Deputy chief investment officer Dan Bienvenue has stepped in the role in an acting capacity.
CalPERS has about $555.2 billion of assets in manages on behalf of Californians working in the public sector.