Require CalPERS to Invest 100% in California?

According to the CalPERS website, in their California Investments section, “as of January 31, 2011, approximately 10.3 percent of CalPERS total assets are invested in California.” This means that out of the $233.5 billion in assets under management by CalPERS (ref. Current Investment Fund Values), $24 billion is invested in California.

Apparently CalPERS would have us believe that investing 10.3% of their assets in California is a praiseworthy accomplishment, since their disclosure goes on to state “CalPERS is one of the largest investors in California – providing jobs, services, and a financial boost to the State’s economy.” But why shouldn’t CalPERS invest 100% of their funds in California?

Back in 2004 I attended a business forum focusing on the Sacramento region, and listened to a panel of experts discussing California’s economic prospects. One of these experts was an investment manager from CalPERS, who stated with pride that “fully 20% of CalPERS investments are made in California.” (Note: it’s only half that much today) At the time, I asked him why we should be impressed by the fact that 100% of CalPERS funds come from California taxpayers, yet only 20% of those funds go back into California-based investments. His answer was instructive: “We have to invest where we can realize the largest returns.”

The debate over whether or not public employee pension funds are sustainable hinges on one key question: What are the largest sustainable, long-term returns possible? And from that [...] Read More