Waste Of The Day: California’s Clean Energy Investment Doesn’t Pay

Authored by Jeremy Portnoy via RealClearInvestigations,

Topline: In 2007, California invested $468.4 million of its pension funds into private companies through its Clean Energy and Technology Fund. Today, the money is worth just $138 million, and the state won’t explain why its investment performed so poorly. Several open records requests filed by The Center Square were denied by the California Public Employees Retirement System, citing legal exemptions. 

Key facts: CalPERS’ clean energy investments declined by 71% and lost the state $330.4 million. It’s unclear where the money was spent, except that it was invested “across the spectrum of the global clean energy and technology value chain.” The state’s website lists two equity firms that received nearly $48 million in investments and lost almost $32 million of it.

The Center Square estimated that if California had invested its $468.4 million in an S&P 500 index fund in 2007 instead of the Clean Energy Fund, the money would now be worth $3 billion.

Private equity firms were paid at least $22 million to manage California’s clean energy investments, according to The Center Square. 

CalPERS has been increasing its investments in private companies for years, as opposed to public equity investments in publicly-traded stocks and bonds. The state now plans to invest 17% of its pension fund in private equity, up from 7% in 2021, according to The Center Square.

Critical quote: State Assemblyman Carl DeMaio was among those to respond to the report. He wrote a letter to the U.S. Department of Justice asking for an investigation into how California’s pension savings were spent, and claimed that “If CalPERS were a private entity, people would be going to jail over this outrageous violation of fiduciary responsibility — but California politicians have passed laws allowing CalPERS leadership to get a pass.” 

“CalPERS’ job is to safeguard retirement funds, not gamble them away to score political points,” DeMaio said. “This is financial malpractice and a betrayal of public trust, and the public deserves to know exactly who made these reckless decisions.”  

Background: CalPERS only has 79% of the money it needs to pay pensions it has already promised to retirees. If the money does not materialize before the pensions are due, taxpayers will likely be responsible for the remaining 21%.

In dollar terms, CalPERS is underfunded by $174.6 billion, according to Equable. No other retirement system in the country has more than $85 billion worth of debt. Executive Officer Marcie Frost earned a $530,000 salary last year.

California also manages a separate pension fund for teachers, which is underfunded by $69 billion. Its Chief Investment Officer Christopher Ailman made $561,000 last year, the highest salary on the state payroll. 

Search all federal, state and local salaries and vendor spending with the world’s largest government spending database at OpenTheBooks.com. 

Summary: Taxpayers deserve full transparency into even small amounts of government spending, but oversight of one of the largest pools of state funding in the U.S. is especially important.