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The nation’s largest public pension fund, the California Public Employees’ Retirement System (CalPERS), is severely underfunded. With more than $300 billion in assets, CalPERS future liability exceeds those assets by more than $100 billion. How did things get so bad? A number of factors have contributed to CalPERS’s relatively recent and precipitous decline.
- The overwhelming majority of those who sit on CalPERS’s board of directors have little to no financial or portfolio management experience.
- CalPERS has prioritized relatively poor performing Environmental, Social and Governance (ESG) investments at the expense of other investments more likely to optimize returns.
- Despite CalPERS increased focus on ESG investing, the fund’s Chief Investment Officer and two other senior executives don’t invest their own personal money in ESG funds.
- Unrealistic actuarial assumptions (e.g. the “discount rate” applied to estimate the present value of future distributions) have drastically underestimated the pensions stated unfunded liabilities.
- The Board uses its size and its beneficiaries’ money to wage war on companies not aligned with its political views, and influences other large institutions and influential proxy advisory firms to fall in line alongside it – or run the risk of losing out in billions of dollars in annual fees and business transactions.
Read ACCF’s report – Point of No Returns: Taxpayers on the Hook for $1 Trillion as Public Pensions Choose Politics over Performance and check out the Infographic to learn more.