The California Public Employees Retirement System has a reputation for making questionable investments.
Some might say they are merely “political” in nature, therefore they are bound to draw criticism.
But past “political” investments have turned sour, leaving them open to question.
The track record hasn’t stopped the system, known as CalPERS, though, from charging on. It reported in November that, as of June 30, “its investments in climate solutions had grown to nearly $60 billion.”
It’s “a number,” says CalPERS, “that represents significant progress toward meeting the $100-billion goal identified in the pension fund’s Climate Action Plan,” which was set up two years ago.
It’s also clear evidence a retirement fund more interested in bankrolling a political agenda than it is in meeting its obligations to retirees and taxpayers.
Assemblymember Carl DeMaio calls CalPERS’ ideologically driven investments “gross violations” of its “fiduciary responsibility.”
DeMaio is asking the Justice Department to investigate mismanagement at the fund. He wants to know how the losses were reported, the decision processes behind investment selections, and if political considerations have influenced those decisions.
Not quite two decades ago, CalPERS placed $468 million in its Clean Energy & Technology Fund that focused on green initiatives. It lost 71% of that money and has not been forthcoming with an explanation for how such a loss could have occurred.
Not that the loss should be a surprise. CalPERS has a history of earning “sub-par returns both in the short and long-term,” according to PRI research, which raises questions about the system “acting to promote political biases rather than encouraging investment opportunities that offer diversification and higher returns.”
CalPERS doesn’t hide its objective. It openly acknowledges that it has made commitments to “13 climate-focused funds covering such industries as renewable energy, energy optimization software, drought resistant crops, wildfire fire suppression, electric vehicle charging networks, reusable packaging containers, and battery storage.” The list reads like the bullet points of an activist group’s mission statement.
PRI senior fellow Wayne Winegarden has found that “there are legitimate concerns that CalPERS’ political views are conflicting with its fiduciary responsibilities.” By committing to an environmental, social, and governance (ESG) agenda for investing, “CalPERS is securing lower returns while setting up financial roadblocks to future strong returns.”
CalPERS estimated in July that the status of the public employees’ retirement fund was capitalized at only 79%. While that’s an improvement over the two previous years, it still means that taxpayers are liable for the remainder – an unfunded debt that might be as much as $1 trillion, more than enough to trigger an avalanche of economy-crushing tax hikes.
Winegarden’s research further revealed that CalPERS was one of the most poorly managed major public pension funds, ranking it an abysmal 67 out of 83 in 2023. If CalPERS had not allowed politics to taint its investing strategies, had it instead made conventional, conservative investments, it would have fared far better. Judging by its returns ending June 30, 2024, it fell far short of S&P 500 gains in its current year performance (9.3% versus 22.6%), its five-year earnings (6.6% versus 16.5%) and 10-year returns (6.2% versus 11.3%), according to Winegarden’s calculations.
Given CalPERS’ frequent lapses, it seems DeMaio isn’t that far off when he says if it “were a private entity, people would be going to jail over this outrageous violation of fiduciary responsibility.”
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute and co-author of the PRI book, The California Left Coast Survivor’s Guide.
