CalPERS Must Set Aside Politics and Remember Its Fiduciary Responsibility

There is a fundamental dichotomy at the heart of the growing trend in socially responsible investing, in which pension funds or other investors focus on inherently political issues rather than solely on financial results. Research recently published by the Spectrem Group, a market research firm, tries to determine what pension participants think ought to be the primary purpose of public pension funds. It finds that the perspective of the pension participants is at odds with those who manage the funds.

Spectrem surveyed more than 800 members of the California Public Employee Retirement System, or CalPERS, to elicit their views on recent fund performance. The survey revealed that the participants have a high degree of confidence in their fund. Nearly half of respondents believe the fund has beat the market in recent years and almost two-thirds believe that their pension fund is fully funded, with sufficient finances to cover all members’ pensions.

Of course, the truth at the nation’s largest public pension fund is starkly different.

Over Thanksgiving the fund quietly released over two hundred pages of information reviewing its 2017 performance. The sheer volume of words hid the most important takeaway: CalPERS does not have nearly enough money to cover its future obligations.

The report notes that there is a $138 billion unfunded liability, up $25 billion from 2016 —  despite a booming year in the stock market — amounting to a funding ratio of only 68 percent.

Perhaps the most concerning point raised by Spectrem’s study, however, is a deep-seated inconsistency between the objectives of the fund’s members and its professional investment managers.

Read the full piece at Morning Consult:

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