Russell Read does not regret pushing Calpers, the biggest U.S. public pension fund, into investment frontiers that consultants avoid -- and he sees the public pension funds at a crossroads on what to do next.

The former chief investment officer of Calpers, the California Public Employees' Retirement System, took the fund into commodities, infrastructure and emerging markets, and raised its private equity exposure.

Critics called it a risky strategy whose failure was borne out by a $100 billion drop in the fund.

There is this fork in the road right now, said Read in a telephone interview with Reuters on Friday, outlining a conflict over strategy for pension funds.

There is really a disconnect between most investors and some important consultants, said Read, who now heads green technology investor C Change Investments.

Calpers' appetite for risk has come under scrutiny during the meltdown in financial markets. From a high of $260 billion in October 2007, the value of the fund's portfolio tumbled to $160 billion a year and a half later. It has since recovered to about $200 billion, which Read saw as a sign of resilience.

Internationalization of the fund cut its risk through diversification, while Calpers consultants Wilshire Associates, and its Managing Director Michael Schlachter in particular, saw U.S. bonds and equities as the low-risk way, Read said.

Their view is that the component of risk increased. From my standpoint, it decreased and with better opportunities, said Read, calling it an honest disagreement.

The consultant community is definitely -- particularly Wilshire, you heard it with Michael -- it definitely, instinctively looks at a U.S.-centric stocks and bonds portfolio as a low-risk portfolio. Most investors in contrast look at that as a concentrated risk portfolio, he added.

A number of pension industry executives, including former California State Teachers' Retirement System Chief Investment Officer Thomas Flanigan, also have said Calpers could have avoided substantial losses by focusing on fixed income.

Read said a sharp retrenchment into fixed income would have been a difficult move for such a big fund to make fast.

Calpers spokeswoman Pat Macht by email downplayed any difference of opinion about Read's plans.

The Board considered it thoughtfully and came up with a solution that made the most sense that Russell and Wilshire were in agreement with -- not to make a giant reallocation, so they made a small incremental change with inflation linked and absolute return strategies as well as in emerging market stocks, she wrote. Wilshire supported that statement.

Calpers in a statement also disputed that Wilshire had warned against Read's plan to increase allocation of private equity, saying there were disagreements on other asset classes but not private equity.

LOOKING ABROAD

Read said his goal as Calpers' top money man between 2006 and 2008 was to make the fund's portfolio less U.S.-centric overall and to reduce its concentration in U.S. stocks and bonds specifically.

Doing so meant moving into new markets, including land for residential real estate and collateralized debt obligations.

Read won over the Calpers board with his view that emerging markets hungry for energy and materials would take an increasing share of world commerce, which the fund could ride both by investing in commodities, which would also hedge against inflation, and by buying stocks in distant bourses.

By diversifying away from plain vanilla investments in the United States, Calpers would reduce the effects of shocks to its overall portfolio and, equally important, get in early in emerging investments areas, Read said.

Despite the massive drop in value to early this year, Read praised Calpers' risk management system.

We used what we believed were the finest resources available including some terrific external vendor packages, Read said.

It gave us a very good idea of what idea our risks were, particularly with publicly traded securities. It led us to a firm belief that diversification, particularly away from publicly traded stocks, matter of fact from U.S. stocks, was in both the risk interest and the opportunity interest of the fund.

But the effort was not bullet-proof, Read said, especially in regards to the liquidity crisis which froze markets.

It really was one of the ironies, because on the one hand we were early identifying liquidity as a risk factor, and unfortunately that didn't lead to us being able to assess properly all the liquidity limits that we faced, Read said.

Read left Calpers in mid-2008 ahead of an epic liquidity crisis and the greatest challenge to financial markets since the Great Depression.

I do wish I had been there to help steward the fund during a perilous period which I did not anticipate, Read said. My only regret is not having been there during a time of crisis.

Many say Calpers should rebuild its portfolio with fixed income or traditionally conservative investments, but earlier this year the fund increased its allocation to private equity and venture capital to 14 percent of assets from 10 percent.

Read endorsed the move.

The worst thing to do would have been to have retrenched to a U.S. stock and bond portfolio that characterized our types of plans more than two decades ago, he said.

He still owns a 600-acre forest in Maine, groomed with a pre-colonial mix of trees, which to some symbolized his move into new investments when he took the Calpers job.

This is intended to be extremely valuable, harvestable timber, he said, arguing that he followed his own advice.

California Investment