An independent investigation into the nation’s largest public pension, the California Public Employees’ Retirement System, concluded that its 2.4 million members are imperiled by secrecy, chronic underperformance, understated investment costs and conflicts of interest.
Subscribe to read this story ad-free
Get unlimited access to ad-free articles and exclusive content.
The report was commissioned last year by a nonprofit advocacy group that includes beneficiaries of the $630 billion fund who were concerned about its lagging performance and lack of transparency. They took the unusual step of hiring their own investigator, a former Securities and Exchange Commission lawyer, after a failed effort to persuade state legislators to order an audit of the fund and to require the creation of an inspector general to oversee it.
Among the report’s key findings:
- The fund’s returns placed it in the bottom 15% of all 230 U.S. public pension funds for five- and 10-year periods.
- Some 9% of the pension’s assets are in aging private equity partnerships, known as zombie funds, that are having difficulty selling the companies they have invested in. These funds are “consuming management fees but producing little or no return for investors.”
- The fund’s staffers receive “excessive compensation” despite its dismal performance. Four executives make more than $1 million a year, another four more than $900,000 and 26 earn between $500,000 and $900,000.
“Between chronic underperformance, potentially hidden costs and fees, we are extremely concerned by the risks in the fund,” said Margaret Brown, president of the Retired Public Employees Association of California, which funded the report, and a former CalPERS board member. “This is why we need the Office of the Inspector General, somebody independent with subpoena powers, to get the records to investigate.”
Margaret Brown.Courtesy Margaret Brown
In a statement, Marcie Frost, CalPERS’ chief executive officer, characterized the report as “an opinion piece full of baseless assertions and breathless language designed to make our members needlessly fear for the stability of their pensions.”
She added that the fund’s performance has improved in the past two to three years, driven by its private equity holdings, and that fees have been reduced by 35% since 2024.
“For the past two years, we ranked in the top 5 percent of large U.S. pension funds in terms of performance, and for the past three years we’ve ranked in the top 15 percent,” she said.
Scrutiny of some public pension funds is rising amid concerns about the operations’ secrecy, overly generous valuations of private equity and private credit holdings, and the use of questionable benchmarks to make performance appear better than it is. Public pensions control $6 trillion nationwide, and more than 36 million Americans rely on them.
The CalPERS inquiry was conducted by Edward Siedle, a former SEC lawyer and forensic pension investigator at Benchmark Financial Services who has examined funds in Ohio, Minnesota and Florida.
CalPERS executives produced “limited documents” and refused to provide others requested by Siedle, the report says, leaving him unable to verify how the fund values its opaque private equity and private debt holdings.
In declining the document requests, the report noted CalPERS’ statement: “The public interest in disclosure is clearly outweighed by the public interest in nondisclosure.”
A CalPERS spokeswoman said it provided Siedle with a link to more than 20,000 pages of documents but he could not access it. The fund then mailed Siedle a DVD on April 29, which he said he received Wednesday and has not been able to review.
CalPERS has argued against public disclosures about its private equity stakes in other circumstances. It recently opposed state legislation that would require more transparency in its private equity stakes, the fund’s documents show.
As the fund increases its investments in private equity partnerships, whose terms are complex and confidential, it’s highly unlikely, Siedle’s report said, “that the pension even knows the full sources, amounts and nature of the fees it pays.”
Siedle said it’s concerning that CalPERS, an investment leader that other investors follow, won’t let beneficiaries see inside the fund.
“Public pensions are supposed to be the most transparent funds in the world,” Siedle said. “When public pension officials say a lack of transparency is beneficial, something is fundamentally wrong.”
Improper fees
Financial experts have long pushed for independent oversight of public pension funds in the U.S. One of them is Rich Wiggins, the former investment risk and operations officer at the Iowa Public Employees’ Retirement System. He suggests the creation of a single independent auditor paid for by the states to monitor all state pensions.
“It’s so easy to snow people,” Wiggins told NBC News. “There needs to be an external force that says, ‘Here is a three-page summary of how this plan did against realistic benchmarks.’”
Rich Wiggins.Courtesy Rich Wiggins
Pension fund participants would benefit from third-party oversight, Wiggins said, but so would state taxpayers who ultimately back these funds.
Wiggins speaks from experience. A former head of risk and strategy for Saudi Aramco, he joined the Iowa pension system in 2022 and was fired nine months later after he said he flagged inaccuracies in how the pension fund reported its investment risks and management fees and expenses.
Wiggins is suing the state of Iowa, alleging wrongful termination. In April, the judge hearing the case denied Iowa’s motion to dismiss Wiggins’ suit, and it is ongoing.
Rachel Simons, a spokeswoman for the Iowa pension fund, said the fund could not comment on the active litigation.
Other public pensions, including the New York State Common Retirement Fund, have inspectors general monitoring their activities. Independent oversight of the New York fund began in 2008 after a pay-to-play scandal.
An inspector general could focus on an array of issues at CalPERS, Siedle’s report said, with most involving the fund’s private equity and private debt holdings. An assessment of all past payments to investment managers could reveal improper fees and expenses, the report says — a problem that Andrew J. Bowden identified in the private equity industry in 2014 when he was the SEC’s director of compliance inspections and examinations.
Siedle’s report also contends that the fund’s longtime investment consultant, Wilshire Associates, poses a conflict to participants in part because it’s owned by private equity firms. CalPERS has relied on Wilshire’s advice on investments for decades as it increased its private equity stakes.
Wilshire is owned by CC Capital Partners and Motive Partners, in which private equity giant Apollo Global Management owns a 24.9% stake. CalPERS has long been an investor in Apollo funds; the pension’s most recent annual report shows investments in nine Apollo funds valued at $772 million.
In a regulatory filing, Wilshire says it “is committed to ensuring that it appropriately manages conflicts of interests.” Wilshire declined to comment further on the record.
CC Capital declined to comment, and Motive Partners declined to comment on the record.
