How “Socially Responsible” Investing Destroyed the Pension Fund of 1.6 Million Public Employees

Socially responsible investing wasn’t the only thing that trashed CalPERS, the size of the benefits packages were also a problem. Numbers like these explain the trajectory of the bankruptcy express quite well…

Vallejo, which has already emerged from bankruptcy, did nothing to reduce its pension costs in Chapter 9, and its employee costs remain sky-high. To employ a cop in Vallejo still requires $230,000 a year, including $47,000 in annual CalPERS costs.

… not to mention the pervasive corruption, but as the City Journal report from Steven Malanga shows, socially responsible investing pushed CalPERS into subprime mortgages and out of profitable investment areas.

Wilshire Consulting reported last year that CalPERS’s returns over the past five years have trailed those of 99 percent of large public pension funds.

The price of liberalism was the destruction of public sector pensions.

CalPERS was left one of the biggest shareholders in America. And over time, the CalPERS board started using its newfound power to enforce its own political agenda, often without meeting its fiduciary responsibility to invest the fund’s money wisely.

Leading the charge after becoming state treasurer in 1999 was Phil Angelides, who announced that he wanted to “mobilize the power of the capital markets for public purpose.” During Angelides’ tenure, according to a Sacramento Bee analysis, a third of his office’s press releases concerned his actions on the boards of CalPERS and of CalPERS’s sister fund, the California State Teachers’ Retirement System (CalSTRS). For example, soon after Angelides took his board seats, he persuaded CalPERS and CalSTRS to divest shares in tobacco companies. Depressed at the time, those shares soon began to rise; a 2008 CalSTRS report estimated that the funds missed $1 billion in profits because of the divestiture. CalPERS also banned investments in developing countries like India, Thailand, and China because they didn’t meet Angelides’ labor or ethical standards. A 2007 CalPERS report calculated that its investments in developing markets underperformed an international emerging-markets index by 2.6 percent. Cost to the fund: $400 million.

By 2011, according to a Mercer Consulting report, CalPERS had adopted 111 different policy statements on the environment, social conditions, and corporate governance, all dictating or restricting how its funds could be invested.

Many socially conscious investors then turned their attention to another industry that didn’t pollute: finance. One social-investing research firm named Fannie Mae the leading corporate citizen in America from 2000 through 2004. Other finance firms that attracted big cash from social investors included AIG, Citigroup, and Bank of America, according to an analysis by American Enterprise Institute adjunct fellow Jon Entine. When the market for shares of these firms imploded in 2008, so did the performance of social investors.

What exactly did CalPERS get into?

Desperate for higher returns, CalPERS also bought the riskiest portions of collateralized-debt obligations, accumulating $140 million of them by 2007. These were the packages of debt, largely subprime mortgages, whose defaults helped trigger the 2008 financial meltdown. According to a 2007 story by Bloomberg News, CalPERS bought these investments, known as “toxic waste” on Wall Street, from Citigroup, one of the sinking firms that the government later bailed out.

So CalPERS bought toxic investments created by liberal housing legislation on behalf of a liberal pension structure in a financial gimmick thought up by liberal billionaires and funders of the liberal takeover of government.

California’s financial mismanagement is a reminder of why the Soviet Union collapsed. California unions however have learned nothing from the experience.

Los Angeles moved Wednesday to divest its pensions from any company associated with the production, sale or marketing of assault weapons.

“We are sending a clear signal that Los Angeles supports a ban on assault weapons and that the second-largest city in the nation will not use its resources to fund these dangerous weapons,” LA Councilwoman Jan Perry, who introduced the motion, said on her blog.

The measure instructs the city’s three pension fund systems to report on their investments and begin the process of divesting from companies that produce, sell or market assault weapons, high-volume ammunition magazines, high-caliber ammunition and other firearms “of a type used to inflict mass casualties.”

  • SuicidePrevention

    The managers of public pension funds are like all managers of other people's money. Rarely
    are their interests aligned with the people whose money they manage. In fact they often cultivate
    relationships with the big banks and investment houses, buying their dreck CDOs and IPOs, so they can then jump to a job with the fraudulent dreck-sellers.

  • http://www.adinakutnicki.com AdinaK

    There is NO such thing as "socially responsible" investing. There is financially prudent investing and that is that. Having co-owned a corporate tax practice, this can be stated with fiscal responsibility.

    In fact, those who invest otherwise are nothing more than scam artists, as they generally take their large cut off the top, and the rest of the schmucks are left holding the bag – empty!

    Wherever leftists/liberals troll mayhem follows – http://adinakutnicki.com/2012/07/01/leftist-dogma

    "Social justice" is code for radical left injustice, and the masses are their guinea pigs. It is the same world over . Alas, our crew, in Israel, is toxic and destructive. Its leaders are the branja pack (like the brat pack), who use their platforms to jump start political careers – always as socialist leftists!!

    Adina Kutnicki, Israel – http://adinakutnicki.com/about/

  • Mary Sue

    Oh yeah, 'socially conscious' investments. That's like saying HERE TAKE MY MONEY I DON'T NEED IT BACK

  • Larry

    They were investing liberals funds, in areas that those liberals would have approved of, and probably invested themselves.

    It just goes to show you can't save stupid people from themselves.

  • kafir4life

    Proof that a fool and your money are soon partners.

  • john spielman

    So if CalPERs is still being fed vast amounts of city revenue, when will the city become insolvent again or at least nonfunctional with out street /sewer repairs no police or fire protection because all the city taxes go to city retirees?

  • Rifleman

    Since they're losing their rears being 'socially responsible' (only a leftist would think it 'socially responsible' to put money into losing investments) the federal government will bail them out. I wonder how much they put into those bankrupt 'green' energy companies?

  • Gee

    I think that term liberal is being misused. Liberals believe in personal rights, freedom of speech, freedom of religion, and the rest of the bill of rights.

    Leftists on the other had believe that people have the right to agree with them or they are not allowed to have any rights.

    I think that it would be leftists that brought about the problems – not liberals that actually believe in the Constitution

  • John Cocktostin

    More crap "journalism"… CapPERS should be slapped for underperforming its peers, but good grief — at least have an argument that makes sense. Stringing together unrelated issues and implying causality ain't it.
    What a pension fund that didn't invest in subprime, didn't do business with Citigroup, didn't invest in financial institutions or who were aggresssive investors in developing markets? There aren't many. No, these aren't liberal or conservative issues. Was Citi conservative before it needed a bailout and now it's liberal — or, is it vice versa. I can't tell from this story.
    Social funds fail when they deviate too widely from the market composition and exclude huge portions of the economy (which CalPERS did). On the other hand, choosing the most efficient firms in each industry (which includes the best environmental stewards) is a darned good way to make decent returns. Oh, and look out because it might get you branded a liberal.

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