(Bloomberg) -- Stephen Gilmore oversaw some of the pension-investing world’s best returns at his country’s sovereign wealth fund. He’s now taking one of the industry’s hardest jobs: reviving the fortunes of the much bigger California Public Employees’ Retirement System.

Gilmore, a New Zealand-born economist and investment strategist who has spent most of his 40-year career abroad, will start at Calpers in July, becoming its fifth chief investment officer since 2009. The largest US pension system, with about $495 billion under management, is trying to snap a long spell of lackluster returns. It conducted a months-long global search for a new CIO before picking Gilmore. His predecessor left Calpers in September after just 18 months on the job. 

As CIO of New Zealand’s Superannuation Fund since 2019, Gilmore helped the government entity nearly double in size to about NZ$72 billion ($43 billion). The fund reported an average annual return of 9.27% over the last five years through February, exceeding its benchmark by 1.29 percentage points. 

Its portfolio is largely comprised of global equities and debt securities, and also invests in alternatives, rural and timber assets, local stocks, private equity, infrastructure and property. The majority of the fund is managed passively, in line with global stock and bond indexes. “Active investing is difficult and is not worth doing in many markets,” it says on its website, adding that it has been selective in this regard. 

The NZ Super Fund was the best performing sovereign investor for the 2013 to 2022 fiscal years based on its 12.1% annualized return for the period, according to Global SWF, a consulting firm that tracks sovereign wealth funds and public pension funds. The Canada Pension Plan ranked second by that measure, with a 10.9% annualized return.

Calpers, at more than ten times the size of the New Zealand sovereign wealth fund, presents a tougher challenge for Gilmore. It manages money for more than 2 million retired police, firefighters and public service employees, and is massively underfunded. It had only about 72% of the assets it needs to pay for future benefits owed at the end of its last fiscal year.

Calpers’ investment portfolio earned a 5.8% return for the 12 months to June — below its annual return target of 6.8%. It was an improvement on the previous year’s negative net return, but the pension fund’s previous CIO, Nicole Musicco, departed shortly after. 

The California retirement system has more than 300 investment professionals, and has made a large commitment to investing in climate solutions in the coming years. Calpers said last month that it plans to invest more in private equity and private debt to earn higher returns, and lower its allocation to public stocks and bonds.

In an interview with Pensions & Investments, Gilmore said Calpers has taken relatively low active risk, and that is among the things he plans to review. 

Calpers said Gilmore would be paid an annual salary of $718,750, excluding incentives tied to fund performance. 

Before working at the NZ Super Fund, Gilmore was chief investment strategist of Australia’s sovereign wealth fund. He studied economics at the University of Canterbury in Christchurch, and worked at the Reserve Bank of New Zealand before joining Chase Manhattan bank in London, according to his LinkedIn profile. 

He has also been an economist at the the International Monetary Fund in Washington, and served as the IMF’s resident representative in Tajikistan in the 1990s. He worked as an investment strategist at Morgan Stanley in London and Hong Kong, then joined the European branch of AIG Financial Products, the former derivatives unit of insurer American International Group Inc., also as a strategist. 

The NZ Superannuation fund was worth about NZ$40 billion when Gilmore joined in early 2019. He led a 45-person team responsible for the appointment and monitoring of external investment managers, as well as New Zealand and international direct investment and asset allocation. 

Gilmore will leave the fund at the end of June. He “championed the role of new technology in enabling better investment decision-making, brought innovative and disciplined thinking to our investment processes and, as chair of our responsible investment strategy refresh, has been key to our shift toward a sustainable investment approach,” the fund’s acting CEO Paula Steed said in a statement Wednesday in Wellington. “These enduring changes have helped to position us well to manage the ongoing growth in the fund.”

--With assistance from David Ramli.

(Updates to add details throughout story)

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