In summary
CalPERS is putting more money in private equity as it seeks higher returns. That’s a contested issue in an election for two seats on its board.
Several candidates for the board of California’s largest public pension fund are complaining that the fund put its thumb on the scale of this month’s election by sending a message to all members before voting concludes.
The message promoted the California Public Employees’ Retirement System’s private equity investments — a contested issue in the election, with several of the candidates criticizing the investments’ associated fees.
“Regardless of one’s view on private equity, sending such a communication while members are weighing their choices risks giving the appearance that staff are attempting to shape the outcome of an election rather than allowing members to decide for themselves,” candidate Steve Mermell, who is challenging an incumbent, wrote to the board after receiving the message.
CalPERS, a $584 billion pension fund that manages retirement benefits for 2 million people, is overseen by a 13-member board. Its members choose representatives for six of those positions. The other severn are either elected officials or appointees of the governor and Legislature.
From Aug. 28 through Sept. 29, about 1.7 million CalPERS members are voting on two positions in a testy campaign fueled by public sector union money.
CalPERS over the past several years ramped up its investments in private equity to $92 billion as it sought higher returns. CalPERS leaders maintain the strategy is working even after subtracting private equity fees.
Last year, CalPERS reported an 11.6% investment return, exceeding its target of 6.8%. This week’s message to CalPERS said, in part, “This strong result – the best in the last four fiscal years – was driven largely by the strength of our private equity investments.”
In an interview last week, CalPERS board member David Miller said, “I would point to private equity as a linchpin of that strategy. People are always saying, ‘CalPERS, use your size, use your size.’ That’s exactly what we’re doing.”
Miller is up for reelection this month. He’s facing Mermell, a retired Pasadena city manager, and Santa Monica firefighter Dom Bei. Bei on social media this week also criticized the timing of CalPERS’ message.
“Let’s be honest: what they gave us wasn’t perspective at all,” former board member Margaret Brown wrote in a letter to the CalPERS board after the message was released. “It was a glossy narrative declaring private equity is awesome. Real perspective means hearing both sides, the risks and the rewards. What CalPERS gave us was a sales pitch.”
Brown is now a leader in a group called the Retired Public Employees Association, which is supporting Bei.
CalPERS spokesperson James Scullary in a written statement said the message was tied to a discussion about the fund’s overall performance at its board meeting this week.
“We know that our members are curious about private equity, so the release was timed to coincide with Monday’s board discussion around our investment returns, the role private equity played, and a proposed shift” to what CalPERS calls a “total portfolio approach.”
