The most recent estimate says that California Public Employees Retirement System, the largest public employee pension fund in the nation with about 1.8 million beneficiaries, has an unfunded liability of roughly $138 billion with total obligations of around $435 billion. While part of that gap is due to the government employers not contributing enough into the employees’ pension funds, a significant portion was caused by CalPERS’ habit of making unwise, politically driven investments.
“CalPERS has prioritized relatively poor-performing environmental, social and governance investments at the expense of other investments more likely to optimize returns, the American Council for Capital Formation says in its just-released report that has the fitting title of “Point of No Returns: Taxpayers on the Hook for $1 Trillion as Public Pensions Choose Politics over Performance.”
CalPERS even “increased its position by 40.4 percent” in Suntech, a solar panel maker in China, while the company was going through a Chapter 15 bankruptcy in the U.S., and sunk money into other so-called clean energy losers just because the “investments” fit with a political agenda.
While CalPERS throws money at these companies, it wants to financially hurt the sectors that have been demonized by the progressive left by divesting from them. State Treasurer John Chiang, who is also an ex officio member of the CalPERS board, has proposed pulling money from the gun and ammunition industries. CalPERS has already divested from the tobacco and coal industries, and there is pressure to do the same with oil and gas. The Los Angeles Times reported last month that “the divestment decisions already made have shrunk CalPERS’ portfolio by about $8 billion.”
Naturally, CalPERS is defiant about its politically driven investing. Rather than take seriously its fiduciary duty to retirees, it plays with their money by chasing trendy causes, such as efforts to fight climate change and crusades to force corporate boards to diversify.
“We’re passionate about and fully committed to advocating on behalf of shareowners for the right to have a say in how the companies we invest in are run,” CalPERS spokesman Wayne Davis told the media. “We stand behind our efforts. Any suggestion that we stop engaging with companies on behalf of our members is laughable.”
CalPERS’ predicament isn’t particularly funny. Tim Doyle, the American Council for Capital Formation’s vice president for policy and general counsel who wrote the report, said in a separate statement that the “troubling pattern of investments in social and political causes” is “truly jeopardizing the retirement fund.” But it’s not the CalPERS managers or retirees who will truly be in jeopardy. It’s another group that is already bleeding.
“If CalPERS isn’t able to make good on those promises in the future, taxpayers will be held accountable for the losses,” said Doyle.
The report recommends that public pension funds should employ “a non-political, outsourced fund manager whose sole guiding principle would be to increase the value of the fund while protecting California taxpayers,” even it requires the job to be outsourced. Large corporations outsource investment management. There’s no reason public employee pension funds can’t do the same.
Public employees as well as union officials have asked CalPERS to purge its portfolio of “socially responsible” companies that yield poor returns, and to take it easy on the activism. Most would agree that’s a reasonable request. But Davis made it clear that CalPERS doesn’t care. The managers know that the taxpayers will be required to rescue them from their risky — but politically correct — decisions. They’re not worried.
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.