CalPERS Underperforming Due to Secrecy and Excess
· news
Nation’s Largest Public Pension Fund Plagued by Secrecy and Underperformance, Probe Finds
The nation’s largest public pension fund, California Public Employees’ Retirement System (CalPERS), has been shrouded in secrecy and controversy for years. An independent investigation into the $630 billion fund has uncovered a host of disturbing practices that imperil the 2.4 million members who rely on it.
The report reveals CalPERS’ woeful performance over the past five- and ten-year periods, placing it firmly in the bottom 15% of all 230 U.S. public pension funds. This underperformance raises serious questions about the effectiveness of CalPERS’ investment strategies. The fund’s assets are disproportionately invested in aging private equity partnerships, known as zombie funds, which struggle to generate returns for investors.
The investigation highlights exorbitant compensation packages awarded to top executives at CalPERS, with four individuals making over $1 million per year and 26 others earning between $500,000 and $900,000. This excess pay is particularly egregious given the fund’s dismal performance and the secrecy surrounding its operations. Margaret Brown, president of the Retired Public Employees Association of California, noted that “between chronic underperformance, potentially hidden costs and fees, we are extremely concerned by the risks in the fund.”
The investigation was conducted by Edward Siedle, a former Securities and Exchange Commission lawyer with extensive experience in forensic pension investigations. Despite his efforts to secure documents from CalPERS, he faced resistance and obstruction. The fund’s executives produced limited documents, refusing to provide others requested by Siedle, which left him unable to verify the opaque private equity and private debt holdings that make up a significant portion of the fund.
The implications of this report are far-reaching. As public pensions control over $6 trillion nationwide, with more than 36 million Americans relying on them for their retirement security, it is imperative that these funds operate transparently and efficiently. The lack of accountability at CalPERS is particularly concerning given its size and influence in the investment world.
One solution to this crisis is the creation of an inspector general to oversee public pension funds. This would provide a much-needed check on the power of these institutions, ensuring they are operating in the best interests of their beneficiaries rather than solely serving the interests of their executives and large investors. Rich Wiggins, a former investment risk officer at the Iowa Public Employees’ Retirement System, noted that “there needs to be an external force that says, ‘here is a three-page summary of how this plan did against realistic benchmarks.’”
The case for independent oversight has been proven in practice by the New York State Common Retirement Fund, which has had an inspector general since 2008 following a pay-to-play scandal. This type of accountability is essential to maintaining trust in public institutions.
As the CalPERS controversy unfolds, one question remains: what does this say about our broader societal values? Do we value transparency and accountability in public institutions, or do we tolerate secrecy and excess? The fate of millions of Americans’ retirement security hangs in the balance.
Reader Views
- RJReporter J. Avery · staff reporter
While the CalPERS probe sheds light on the fund's underperformance and egregious executive pay, it's time to ask: what's the plan for accountability? With Siedle facing resistance from the very executives whose actions he's investigating, we can assume this report will be met with silence or token reforms. But ultimately, change requires more than just words – it demands a robust overhaul of CalPERS' governance and investment practices. We need to see tangible measures to prevent future abuse and ensure transparency is baked into the fund's operations. Anything less would be a disservice to the 2.4 million members who rely on this vital safety net.
- CMColumnist M. Reid · opinion columnist
It's about time someone shed light on CalPERS' shady dealings. The real scandal here isn't just the fund's dismal performance, but the staggering disconnect between its executives' lavish salaries and the retirement security of 2.4 million Californians. One aspect the investigation didn't delve into is the role of state lawmakers in perpetuating this mess. How have they allowed such a grossly underperforming fund to continue operating with impunity? Until there's meaningful reform, CalPERS will remain a ticking time bomb for public employee retirees and taxpayers alike.
- ADAnalyst D. Park · policy analyst
CalPERS' underperformance is less surprising than its brazen attempts to conceal the issue. While the report highlights excessive executive compensation, it neglects to mention the revolving door between CalPERS and private equity firms. It's likely that some of these zombie funds are not just unprofitable but also provide a personal benefit to former or current CalPERS executives, who may be cashing in on their insider connections. This creates a conflict of interest that undermines investor trust and exacerbates the fund's underperformance problem.