CalPERS Faces Heavy Losses in Clean Energy Investment
The California Public Employees Retirement System (CalPERS), which manages pensions for state employees, has suffered a significant loss—71%—on its $468 million private equity investment focused on clean energy.
Currently, CalPERS pension benefits are only around 79% funded, which leaves California taxpayers and the state government responsible for the remaining 21%. The system is grappling with a staggering pension shortfall of $180 billion, raising questions about the effectiveness of its private equity investment strategy.
In 2007, CalPERS invested $465 million in the CalPERS Clean Energy & Technology Fund (CETF). Since that time, the value of cash out and remaining investments has fallen to approximately $138 million as of March 31, 2025. This represents a loss of over $330 million, with the private equity firm accruing at least $22 million in fees and costs during this period.
Despite these struggles, CalPERS boasts an overall return of 11.6% for the fiscal year 2024-2025, with private equity generating a return of 14.3% and public equity slightly higher at 16.8%.
Mark Joffe, a public finance expert at the California Policy Center, has expressed skepticism about the logic behind CalPERS’s sizable investments in private equity, especially considering their higher risks and costs compared to public equity. “The returns were similar…so why bother?” Joffe questioned. He pointed out that the complexities and illiquidity of private equity aren’t worth it when public markets offer comparable returns.
Further, Joffe remarked that the 71% loss from CETF investments highlights the risks associated with private equity and ESG investing. He noted that these opaque investment choices seem to have been made based on green credentials, yet they end up inflicting substantial losses on taxpayers and retirees.
CalPERS spokesperson Abram Arredondo attributed the losses to prior management and offered a defense of their investment strategy. “The history of the CalPERS Clean Energy & Technology Fund dates back to 2007, before the current board and staff shifted their focus to private equity strategies,” he stated. He also mentioned that efforts have been made to reduce fees and diversify investments to minimize risk, claiming that private equity has been a strong performer over the last two decades.
Since 2022, Arredondo noted that CalPERS has reduced fees by 10 percent. While CalPERS’s private equity investments may seem to be yielding better returns than their public counterparts, experts caution that the high fees charged by private equity managers, coupled with the risks involved, raise concerns about the sustainability of this investment strategy.
